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Stock Strategist

Four Cheap Stocks with Solid Earnings

These 5-star stocks beat earnings estimates and still look like good values.

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Earnings surprises have become much less surprising. For the last few quarters, most companies small and large have been reporting earnings that have beaten Wall Street analyst estimates. Two major forces drive this outperformance.

The first is that the pace of recovery, especially at the beginning of 2009, was much faster than anyone dared predict in the dark days of the recession. It was unthinkable that the economy would stabilize, and even grow, so quickly given the depths to which it had fallen. But as the first green shoots of activity began emerging, earnings perked up faster than expected. At first, earnings were driven by cost-cutting. Firms were able to cut labor and other variable costs very quickly, and the productivity of remaining workers shot up. Now as the recovery enters the next phase, inventory restocking and even some rises in end demand are helping drive companies forward.

Jeremy Glaser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.