The Tycoon Report

How to get France, Germany and England on the Economic Dance Floor.

April has been a rough month for investors, sending U.S. shares down almost 10 percent.

But, with sharply rising earnings, analysts at Fallen Angel Stocks have found during the same period that earnings have risen sharply, creating some appealing valuations.

IT WOULD CAUSE INVESTORS IN ENGLAND, JAPAN AND GERMANY TO RUN INTO THE STREETS IN CELEBRATION.

In France, officers of investment bank Lazard Freres would stop cursing Bruce Wasserstein, pull out the expensive brandy and toast to his health. No, I'm not talking about a Euro-zone proposal to make Jerry Lewis Day a national holiday. Nor am I talking about giving citizens of each country a free ticket to the next David Hasselhoff concert.

What I am talking about is something that could only cause gloom and doom in the greatest nation on earth: I'm talking about 3.1% first quarter GDP growth. That's right - our economy expanded at a rate of 3.1 % in the first quarter and the stock market hit the skids with a thud.

It's bizarre if you think about it really. In any other "developed" country, news of 3.1% growth would be cause for celebration. Here, it sends investors running faster than Democrats were chased out of the Red States. Are we in such a severe bear market that news of 3.1% growth is seen as bad? The answer is yes.

But you know what? It's not a bad thing. Why? Because although the market has been rough, U.S. companies have announced excellent earnings growth. The result? Stock prices have declined - even for strong companies like Timberland (SYM: TBL) and K-Swiss (SYM: KSWS) even while earnings have risen sharply.

And that means that we're beginning to see stocks selling for more attractive prices. Let's look at the facts:

Eight weeks ago everybody from Larry Kudlow to Jim Cramer were bullishley proclaiming the comeback of the "Goldilocks" economy. Of course readers of this column knew that we were bearish, but it didn't matter - the "smart" money was bullish. And what did the market do? It dropped 1,000 points.

But now the exact reverse has occurred. Turn to any channel and the same rocket scientists who were so bullish eight weeks ago are suddenly sounding bearish. In addition, some major Wall Street brokerage firms such as JP Morgan (SYM: JPM) are beginning to tell their clients to reduce their stock exposure.

Now I'm not telling you that happy days are here again - far from it. What I am saying is that corporate earnings are not as bad as many "pros" would lead you to believe. As a matter of fact, over 65% of companies in the S & P 500 reported first quarter earnings that beat Wall Street estimates. This is above the long-term average of approximately 62%. What's more is that only 17% missed estimates versus the long-term average of 20%. In short, more companies than usual are beating estimates.

So, what does all this mean? It means that first quarter earnings are showing:

1. A larger number of companies than normal are beating estimates.

2. The companies that are beating estimates are beating by more than typically occurs.

3. The aggregate earnings gain have surpassed expectations by a larger than normal amount.

More importantly though is the fact that while corporate earnings have shot higher, the stock market has gone lower. This divergence has created some interesting buying opportunities for investors.

For example, General Electric (SYM: GE) announced earnings growth of 21%, but it's selling for a P/E of 21 versus a P/E of 23 last November. Wal-Mart's (SYM: WMT) P/E was a rich 25 in November of last year, but has recently dopped to 19, while earnings have grown an impressive 19 %. And Procter Gamble (SYM: PG) - acquirer of Fallen Angel Stocks recommendation Gillette (SYM: G) - has grown earnings by 11% while it's P/E has shrunk from 23 to 20.

By no means are we recommending that you dive headfirst back into the market. What I am suggesting is that there are several moves you could make that can protect your assets AND put you in a position to make some money.

Here they are:

1. Take Profits on Small and Mid Cap Stocks: Stocks in this group are always first to move when the economy expands. Hence, the dramatic rise in small and mid-cap shares during the past 2 years. Conversely, they are the first to take it on the chin when the economy slows. Take profits while you still have them - that's why we sold K-Swiss after it ran from $17.5 to $31.

2. Only Buy Businesses With Pricing Power: The world is divided into two types of companies - those that have pricing power and those that don't. Only 2% of companies have it - the ability to raise prices year after year above the inflation rate. Fallen Angel Stocks recommends both Gillette and Comcast, both of which have pricing power and both of which are higher than our recommended price.

3. Eliminate Companies with Debt: I cannot stress the importance of this enough. A company with over 40% of its capital in debt is a prime candidate for trouble in a weak economy or during rising interest rates. That means I would avoid both General Motors (SYM: GM) and Ford (SYM: F).

4. Convert Into a Fixed Mortgage: For any folks out there who have adjustable rate mortgages this is likely your last chance to lock in historically low interest rates. Visit either www.lendingtree.com or to www.eloan.com to move quickly on this.

Remember, you are what you read.