Bank of America (BAC), JPMorgan (JPM), Caterpillar (CAT), Alcoa (AA), Disney (DIS) Earnings Could Soar

Of companies listed on the Dow, some of those poised for probable major earnings growth are Bank of America (BAC), JPMorgan (JPM), Caterpillar (CAT), Alcoa (AA) and Disney (DIS).

Virtually every blue-chip company has been focusing on a key issue for the past two years: Costs. Trimming expenses wherever possible was an absolute necessity during the scariest phases of the economic downturn. Those cuts, in turn, powered a remarkable expansion in profit margins and enabled many companies to record stunningly large profits.

Those days have passed and most large companies are expected to post slowing profit growth in 2011 and 2012. But a few companies aren't done just yet. Thanks to a combination of more expense reductions, solid top-line gains and/or improving gross-margin spreads, it's not hard to find companies that may boost profits by a combined 40% - or more - in the next two years. In fact, I've found five stocks in the Dow Jones Industrial Average that are shaping up to be earnings powerhouses for the next two years.

Of all the stocks in the table above, I have the least confidence in earnings forecasts for Caterpillar. Moreover, shares already trade for around 12 times 2012 profits; historically speaking, that multiple is usually closer to eight or nine in the context of peak earnings. Even if Caterpillar sharply boosts profits again in 2013, and if you assume that 2013 is the peak, then shares are still fully valued.

There's one name in this group - Alcoa (AA) - that continues to be underestimated by many investors.




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