Five Q4 Earnings Reports to Watch

Results and outlooks from JPMorgan, Caterpillar, IBM, Johnson & Johnson, and Exxon Mobil will set the tone for corporate profits in the coming months

By Ben Steverman

A torrent of earnings news begins hitting investors this week, giving them key information about what was perhaps the toughest quarter for U.S. companies in a generation.

According to Thomson Reuters (TRI), analysts expect earnings for companies in the S&P 500-stock index to fall 15.1% in the fourth quarter of 2008 from the previous year.

But there are plenty of questions about those forecasts, especially during such a rocky economic environment. Investors won't really know how U.S. businesses are holding up until earnings results arrive in the next few weeks. They will want to scrutinize detailed quarterly results and hear executives talk about their 2009 forecasts.

Alcoa (AA) officially kicked off earnings season Jan. 12 with its results, and they weren't pretty. Here are five companies to watch in the coming weeks:

1. JPMorgan Chase (JPM)

JPMorgan surprised investors Jan. 13 by saying its fourth-quarter results would be released six days early, on Jan. 15. It's hard to interpret that move, but the bank's stock moved up by 6.7% on Jan. 13.

JPMorgan's report could be an important clue to the future of the sector that started the economic crisis. Standard & Poor's Chief Investment Strategist Sam Stovall calls financial stocks the earnings season's "biggest wild card."

Few investors expect good news from financial companies like JPMorgan. "The only question with financials is how badly they do," says William Rutherford, president of Rutherford Investment Management.

"Problems with financials are continuing to plague the whole earnings front," says James King, president and chief investment officer at National Penn Investors Trust Co.. He says JPMorgan is still experiencing "indigestion" from acquisitions it made in 2008, and sees "no huge turnaround coming" for the sector.

Still, many investors have spent more than a year avoiding all financial stocks. Could long-term value investors start buying them again after a better-than-expected report from JPMorgan, rival Bank of America (BAC), or others? In that case, Rutherford says it's possible he would start buying selected financial stocks.

John Merrill of Tanglewood Wealth Management rejects the idea. Financial stocks have serious short-term problems, given the troubled assets on their balance sheets, he says. But longer term, the problems are also serious, he warns, with the death or decline of key business areas like securitization and lending to private equity and commercial real estate. Financial companies like JPMorgan must spend "at least a half-decade figuring out who they are and how they're going to make money," Merrill says.

2. Caterpillar (CAT)

Closely linked to the build-out of infrastructure around the world, Caterpillar was pummeled by the global slowdown in late 2008. More recently, however, infrastructure stocks have risen on hopes that world governments, including the U.S. and China, will spend hundreds of billions of dollars on roads, bridges, and other projects in an effort to stimulate the economy. Caterpillar shares are up almost 25% since the market lows of late November.