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Earnings Season Gets Underway

In case anyone has forgotten, October is a big month for earnings and economic reports.

The big question, of course, is how much they're going to matter if everyone already expects the worst anyway, and the focus has shifted to the war against terrorism.

We probably won't know much about the effect of the current earnings season until big names like Microsoft and IBM report. IBM and Intel are scheduled to report earnings on October 16, and Microsoft and eBay on October 18.

S&P 500 earnings are estimated to have fallen by more than 20% in the third quarter. The focus will probably be on outlook and visibility: how deep the slump will be and how long it will last.

The big economic reports for the month are likely to be Michigan consumer sentiment on Friday morning, Consumer Confidence on October 30, and GDP on October 31. The Michigan reading Friday morning will probably be the first good look at the effect of the September 11 terrorist attacks, and is expected to drop from 81.8 to just under 76.

Earnings season will kick off in earnest tonight with Motorola's report. Yahoo and E*Trade will report tomorrow night, and Juniper , DoubleClick , RSA Security and Sonus on Thursday.

For the fun of it, we're going to focus less on price-to-earnings ratios this quarter, and more on price-to-sales and price-to-book. Since earnings are lousy anyway, let's focus on other traditional measures of valuation to add another perspective.

And the winner among the companies reporting this week - drum roll, please - is E*Trade, at a price-to-sales ratio of 0.86, and a price-to-book ratio of 1.11. That's pretty cheap, but E*Trade faces one very big obstacle: the longer the bear market goes on, the more customers are likely to shut down their online trading accounts. However, it's probably a good stock to look at for an eventual economic recovery. The loser? Juniper, at PS and PB ratios of more than 10 each. The stock is extremely expensive by those measures, but the valuation is helped by return on equity and margins of 20%-30%, so it gets points for putting shareholder money and revenues to work efficiently.

We'll look more closely at these metrics as earnings season progresses.