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To: ms.smartest.person who wrote (736)	11/13/2001 7:28:01 PM
From: ms.smartest.person	Respond to of 5140

Q3 Efficient Stocks 13-Nov-01 10:02 ET [BRIEFING.COM - Robert V. Green] As we pointed out in yesterday's Stock Brief, some companies have actually increased earnings in this most recent quarter, while experiencing revenue declines at the same time. Here's the list. Q3 Earnings Reports In yesterday's Stock Brief, we provided a summary of the Q3 earnings season so far. But one of the interesting observations which emerged from the analysis was that for non-tech companies with revenue declines, on average, earnings actually increased by 9.8% this quarter. For tech stocks with revenue declines, earnings declines averaged -28%. This sharp contrast in earnings results led to the conclusion that some non-tech companies have used the recessionary environment to trim their operating expenses and become more efficient. The Investment Premise The observation that some companies are improving their models during the recession gives rise to a simple investment premise. Any company which can improve earnings in a downturn is likely to do a better job improving earnings in an upturn. However, this premise should serve as a starting point for additional research, as each company's individual situation may conflict with this basic premise. If, however, further research confirms that a company on this list stands to show an improved operating model, and you believe that an economic recovery is close at hand, then these companies should benefit strongly from a recovery. The improved operating model should be able to drive higher earnings when additional revenue increases occur. Earnings Management One possible implication of companies that have rising earnings with declining earnings is not that the operating model has been improved, but that the company is just very good at managing earnings. Using reserves, or various accounting practices, earnings can be "set" to ensure continual upward progress. While this practice is somewhat different from investment premise above, it is not incongruent. Any company that can manage earnings in a downturn can do an even better job of managing the earnings in an upturn. However, each company should be examined on a case-by-case basis. Efficient Non-Tech Companies To look for companies which have made themselves more efficient in this downturn, we used the following parameters for a stock screen: * Revenue decline, most recent quarter versus a year ago quarter * Earnings increase, current quarter over year-ago quarter * Market capitalization greater than $500 million This simple premise creates a list of stocks that have managed to increase earnings, on a Q3 year-over-year basis, while revenues have declines. This produced a list of 157 stocks. Here are the top eight. Stock Company Revenue Q3 Change Y/Y Earnings Q3 Change Y/Y Price GE General Electric Company -7.95% 4.76% 40.410% KO Coca-Cola Company -2.63% 0.23% 49.220% WFC Wells Fargo & Company -1.11% 42.37% 42.350% AVE Aventis -1.33% 214.46 % 72.800% SGP Schering-Plough Corp -0.50% 2.24% 35.580% DCX DaimlerChrysler AG -3.16% 1,806.38% 37.000% PBR Petroleo Brasileiro -0.26% 21.34% 22.130% TMX Telefonos de Mexico -5.08% 45.14% 33.450% Efficient Tech Companies This same set of parameters, but applied to technology stocks, produced only nine stocks. Here they are. Stock Company Revenue Q3 Change Y/Y Earnings Q3 Change Y/Y Price ORCL Oracle Corporation -0.88 % 4.76 % 15.380 TCM TyCom Ltd. -11.18% 18.27 % 16.960 DHR Danaher Corporation -8.63% 2.26 % 57.660 TMO Thermo Electron Corp. -11.71% 89.19 % 22.720 CPWR Compuware Corporation -12.81 % 97.14 % 9.960 AFCI Advanced Fibre Communic. -25.81% 22.88 % 18.250 MSCC Microsemi Corporation -9.84% 37.62 % 36.240 BBOX Black Box Corporation -6.23% 0.49% 51.030 INTV InterVoice-Brite, Inc. -10.90% 212.50% 43.32 Stock Download For a full view of the non-tech and tech stocks created by this stock screen, along with pertinent metrics such as P/E and P/S, click on these links: * briefing.com * briefing.com For a spreadsheet version of these lists, which will allow you to sort and search the stocks yourself, send me an email, Robert V. Green, at rvgreen@briefing.com Note: On some sites where Briefing.com is republished, these links may not be operational. For a free temporary account to access the archives on our subscription service, please send an email to me, Robert V. Green, at rvgreen@briefing.com Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com <http://www.briefing.com/images/Briefing/bullet_top3.gif> Back to Top Copyright © 2001 Briefing.com, Inc. All rights reserved.