Navellier Growth: your source for market-beating growth stocks

In just a few days, Wall Street kicks off third-quarter earnings season. This is basically Judgment Day for Corporate America. Earnings season is when every company has to report how much money it made (or lost), and their stocks react accordingly. 

This is a tricky time for investors, so this week I want to take a closer look at earnings season and give you a few pointers on how to manage your money during this critical time of the year.

According to the latest data, earnings for the S&P 500 are expected to be only 2.1% higher than they were last year. That's the slowest growth rate in over five years. Wall Street has already discounted much of this earnings slowdown so many forecasters will be paying close to attention to company projections. But to get a feel for how earnings will fare over the next few months, we need to look at the broader economy.

I'm often asked how well the economy is doing. Well nowadays, it depends on whom you ask. If you talk with a banker or homebuilder, then you'll probably get a negative answer. But if you talk with a farmer or a manufacturer who has a strong foreign business, then you'll probably get a very positive answer. The different views are a result of the weak dollar, which is helping to fuel an export boom.

There are also divergent views on the economy from businesses and consumers. Consumer spending is still quite healthy, but spending by businesses is starting to look shaky.

The Commerce Department recently reported that real consumer spending increased by 0.6% in August, which was the fastest growth in two years. The spending party was helped by a 2.8% jump in vehicle sales as automakers went all out to move cars and trucks off their lots. So far, retailers have reported surprisingly strong back-to-school sales. For the third quarter, the economy probably grew about 2%. But retail sales were strong in September, so the number could be as high as 3%.

Spending by businesses, however, is a very different story. The problem is that businesses appear to have been spooked by the credit crisis. Businesses recently curtailed their hiring plans, which caused the first monthly contraction in payrolls in four years. Also, orders for durable goods plunged 4.9% in August. Tomorrow, the government will release its jobs report for September, and this will give us our first glimpse of how much hiring the business sector did last month.

The good news is that despite any potential weakness in the economy, my favorite stocks are entering earnings season "locked and loaded." The average stock on my legendary Emerging Growth Buy List has earnings growth of 287%. Best of all, my Emerging Growth stocks are trading at just 21 times forward earnings. This helps to explain why Emerging Growth has been one of the top-performing investing services for the last two decades. Since 1985, our Buy List is up over 54-fold. (This isn't my number; by the way, it's from the independent Hulbert Financial Digest).

Wall Street analysts have been tripping over themselves in a race to upgrade my favorite stocks. In the last three months, the average Emerging Growth stock has had its earnings estimate revised 6.1% higher. There's also the factor of beating earnings estimates, which my favorite stocks love to do. Last quarter, my Emerging Growth stocks beat Wall Street's estimate by 24%. Adjusting for the results, I estimate that the Emerging Growth Buy List is going for about 16 times forward earnings.

The first Dow component to report earnings will be Alcoa (AA), which is scheduled to report next Tuesday. But I'm not a big fan of Alcoa right now. The stock is currently rated as a "C — Hold" on Portfolio Grader Pro, my free stock-rating website. Before you make an investment decision, be sure to check out Portfolio Grader Pro to see my Buy/Hold/Sell ratings on over 5,000 stocks.

One of my first Emerging Growth stocks to report earnings will be Precision Castparts (PCP). The defense contractor is scheduled to report earnings on October 23. This stock has been on a tear lately, and I think it has much more room to grow. In fact, Precision Castparts has been one of the top-performing stocks of the last generation. Thirty years ago, you could have picked shares for just 13 cents—that's after accounting for stock splits totaling 90-for-1. Over that time, shares of Precision Castparts are up over 1,100-fold! I think you can see why it's an Emerging Growth stock.

The current consensus earnings estimate for Precision Castparts is $1.64 a share, but analysts are all over the map. One analyst sees earnings coming in as high as $1.72 a share, and one even sees it making a paltry $1.37 a share.

Personally, I'm expecting a big earnings surprise. Three months ago, Precision Castparts stunned Wall Street by earning $1.61 a share, 18 cents more than expected. In fact, the company has beaten Wall Street's forecasts by more than 12% for the last five quarters in a row. That's an impressive run, and it's also why I wouldn't be surprised to see earnings come in at $1.80 a share or higher. I currently rate Precision Castparts as a strong buy for conservative investors.

Here's a look at some upcoming earnings reports with my ratings for each:

Stock	Symbol	Date	EPS Estimate	Portfolio Grader Pro Rating
Alcoa	AA	Oct. 9	$0.69	C - Hold
Pepsi	PEP	Oct. 11	$0.96	B - Buy
Intel	INTC	Oct. 16	$0.30	B - Buy
Xerox	XRX	Oct. 19	$0.26	C - Hold
Google	GOOG	Oct. 18	$3.74	B - Buy
Precision Castparts	PCP	Oct. 23	$1.64	A - Strong Buy
Amgen	AMGN	Oct. 25	$1.03	D - Sell
Microsoft	MSFT	Oct. 25	$0.39	C - Hold
Disney	DIS	Nov. 8	$0.41	B - Buy
Home Depot	HD	Nov. 13	$0.62	D - Sell
Wal-Mart	WMT	Nov. 13	$0.62	D - Sell
Target	TGT	Nov. 20	$0.65	C - Hold

Once again, I encourage you to visit Portfolio Grader Pro to see how your stocks stand up. I'm currently writing the next issue of Emerging Growth, which goes out to subscribers after tomorrow's closing bell. This is a crucial issue—I have five new additions to our Buy List. I'd love to have you join us as a full member. To sign up, follow this link.

Sincerely,

Louis Navellier