Zacks Investment Ideas feature highlights: Polaris, Nu Skin, ViewPoint Financial Group and Stewart Information Services

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Nov 21, 2012, 09:30 ET

CHICAGO, Nov. 21, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Polaris Industries (NYSE:PII), Nu Skin Enterprises (NYSE:NUS), ViewPoint Financial Group (Nasdaq:VPFG) and Stewart Information Services (NYSE:STC).

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Overlooked Stocks from This Earnings Season

Third quarter earnings season is largely behind us, and it's safe to say that this was the worst quarter for earnings since the Great Recession.

Overall, earnings for Q3 were down -2.2% from the same period last year. And just 62.6% of companies beat earnings expectations, below the average of 67%.

Perhaps more troubling is the trend in revenue. Only 38% of companies delivered positive revenue surprises this quarter (it should go without saying that sales are more difficult for management to manipulate than earnings). And total revenue was down -3.8% year-over-year.

While weak earnings from the Tech sector may have stood out the most, it was the Basic Materials group that fared the worst this quarter with just 29% of companies delivering positive surprises. The Energy and Utilities sectors weren't much better.

But not every sector experienced a bad third quarter earnings season.

Pockets of Strength

Consumer Discretionary was exceptionally strong this quarter with 79% of S&P 500 companies in that sector reporting better-than-expected earnings. And earnings for the group rose +9% year-over-year. Meanwhile, 72% of companies in the Finance sector delivered positive earnings surprises, with earnings up a stellar +23%.

Despite the strong results, many companies within these sectors sold off over the last few weeks along with the overall market. This could present a good buying opportunity once the market stabilizes.

4 Stocks to Consider

Below are 4 stocks, 2 from the Consumer Discretionary sector and 2 from the Finance sector. Each company delivered solid sales and earnings beats and have seen earnings estimates move higher. And their strong quarters have (mostly) been overlooked by the market:

Polaris Industries (NYSE:PII)

Polaris is one stock from the Consumer Discretionary sector with an overlooked third quarter. The company manufactures off-road vehicles, including ATVs, snowmobiles, and side-by-side vehicles Snowmobiles. It also manufactures motorcycles and small electric vehicles.

Polaris delivered excellent third quarter results on October 18. Sales surged 21% to $880 million, above the Zacks Consensus Estimate of $830 million. Earnings per shares jumped 40% to $1.33, beating the consensus of $1.20. And management raised its guidance for the remainder of the year.

As you'd expect, earnings estimates have risen sharply for both 2012 and 2013, sending the stock to a Zacks #1 Rank (Strong Buy) stock. Although shares initially jumped on the report, the stock has fallen about -8% since October 18 along with the overall market. This could prove to be a great buying opportunity.

Nu Skin Enterprises (NYSE:NUS)

Nu Skin is another Consumer Discretionary stock to deliver strong Q3 results. It is a direct selling company that develops and distributes personal care products and nutritional supplements under the under the Nu Skin and Pharmanex brands.

Nu Skin reported its third quarter results on Halloween. The results were anything but scary. Revenue soared 23% year-over-year to $526 million, well ahead of the consensus of $481 million. Earnings per share climbed 21% to $0.87, beating the Zacks Consensus Estimate by 10 cents. And management raised its revenue guidance for the remainder of 2012.

Analysts revised their estimates meaningfully higher for 2012 and 2013, sending Nu Skin to a Zacks #1 Rank (Strong Buy) stock. Shares jumped 13% on the day of the earnings announcement but have sold off about 7% since then due to the weak overall market.

ViewPoint Financial Group (Nasdaq:VPFG)

ViewPoint Financial is one of several small cap bank stocks with strong third quarter earnings. VPFG is the holding company for ViewPoint Bank, which operates 31 community banks in Texas.

ViewPoint reported third quarter EPS of $0.30, a 77% increase over the same quarter last year, and 20% above the Zacks Consensus Estimate. Total net interest income and non-interest income rose 48% to $39 million, ahead of the consensus of $36 million.

All 6 analysts raised their estimates for both this year and next off the strong quarter. This sent the stock to a Zacks #1 Rank (Strong Buy) stock. After rising for a couple of days after the earnings release, shares sold off steadily over the next two weeks and are back to their pre-earnings announcement level thanks to the market pullback.

Stewart Information Services (NYSE:STC)

Stewart Information Services provides title insurance and real estate information (REI). The company delivered a huge third quarter beat on October 25.

Earnings per share came in at $1.42, nearly doubling the Zacks Consensus Estimate of $0.72. Total revenues surged 24% to $521 million, well ahead of the consensus of $442 million. There are only 3 estimates for STC, but each one moved significantly higher for 2012 and 2013, sending the stock to a Zacks #1 Rank (Strong Buy).

Despite the weak market, shares of STC are up about 25% since its October 25 earnings report. But with shares still trading at less than 10x next year's earnings, there could be plenty of upside left.

The Bottom Line

Although third quarter earnings season was weak overall, the Consumer Discretionary and Finance sectors held up quite well. Within these sectors, these 4 companies each delivered strong third quarter results and have plenty of upside remaining.

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