3 Stocks Poised for Soaring 2010 Profits

ARE THE COMPANIES listed below pricey or cheap? It depends on whether their 2010 earnings forecasts are accurate.

Each company’s shares sell for well more than 20 times this year’s earnings estimate. That’s expensive when compared with the historical average price/earnings ratio for U.S. shares of about 15. But earnings for all three companies are expected to jump next year — to levels that would reduce their P/Es to below 15. By that view, these stocks are attractively priced.

There’s one catch, though. For 2009, the first three quarters of earnings are already booked, so investors can be pretty confident about full-year estimates. For 2010, estimates are educated guesses, and early ones at that. For each company, investors should consider for themselves whether the earnings increases seem likely, even if U.S. economic growth doesn’t bounce back as quickly as hoped.

Genzyme

2008 P/E: 22
2009 P/E: 13

Parents-to-be know Genzyme (GENZ: 48.78, +0.58, +1.20%) as the company that charges whopping fees of $1,000 or more to test mom’s blood for evidence of genetic abnormalities in fetuses. That’s small potatoes, though, compared with the bills sent to sufferers of Gaucher Disease, an inherited, sometimes fatal enzyme deficiency that can cause enlarged livers and bone deterioration. Treatment for the disease using Cerezyme, made by Genzyme, costs more than $200,000 a year, and is required for life. That’s why, even though Gaucher Disease affects only one in 50,000 or so people, it helped account for more than a quarter of Genzyme’s 2008 sales. It’s also an example of why the shutting of a key manufacturing center has been a big blow to Genzyme’s financial results. Third-quarter profits missed forecasts by about 30%. Profits for next year are expected to jump 59%, a sign that analysts expect the company to fix its product shortages. That gives investors a rare opportunity to scoop up Genzyme shares at a reasonable price, about 13 times 2009 earnings. But some of the damage from this year might be lasting. Some Gaucher patients have had to skip Cerezyme dosages, and rival manufacturers are hoping the Food and Drug Administration will grant them early rights to make and sell their own versions of the therapy.

Career Education

2008 P/E: 29
2009 P/E: 14

Based a half-hour northwest of Chicago, Career Education (CECO: 22.30, -0.58, -2.53%) operates 88 schools in the U.S. and Europe offering degree and non-degree programs focused mostly in business, information technology, food service and health care. Its earnings are expected to double next year, not because the company stumbled financially this year, but because it’s simply growing that fast. Enrollment and sales are rising nicely, and because educators have high marginal returns once the facilities are paid for, profits are growing even faster. There are concerns, though. This year has pretty much been a perfect storm of financial events for schools. Unemployment is up, forcing many of the jobless back to college. Interest rates are low, which means loans are cheap. And in the U.S., federal and state governments are offering generous retraining benefits that help students pay for tuition. So a strong economic rebound might prove a temporary setback for Career Education. On the other hand, a continued scarcity of jobs might make it more difficult for vocational educators to justify their fees.

Boeing

2008 P/E: 39
2009 P/E: 13

Earnings for Boeing (BA: 53.44, -1.03, -1.89%) were cut in half this year by a travel downturn, which forced air carriers to cut back on plane orders. Also, the company’s next-generation 787 Dreamliner was expected to have revenues to show by now for its steep development costs. Instead, after a long string of delays to its inaugural flight, it’s running two years late. Would you believe me if I said the plane might fly next week? I’m not sure if I even believe me, but that’s what The Wall Street Journal and others are reporting. Earnings for Boeing are expected to more than triple next year, to even more than what the company earned in 2008. That seems plausible for two reasons. First, 2008 results were hurt by a late-year labor strike. Second, air carriers will have to make up for delayed orders and invest in their fleets sooner or later, and with the dollar weak, Boeing models look like good deals next to Airbus alternatives.