Summer is a wonderful time of year. The sun is shining, the pool is open, and the lazy, crazy days are upon us. There is a baseball game nearly every day and the summer Olympics are just around the corner. Soon we will be celebrating some of the greatest achievements and witnessing some of most memorable moments in sports history.

Upon this beautiful season is also the specter of second-quarter earnings. Now that the third quarter has officially begun, the markets are gearing up for another earnings season. If you want to beat the market, it is important to have a well-founded perspective on earnings expectations. Understanding the importance of earnings is critical if you wish to profit this earnings season.

Since the U.S. is experiencing a dramatic slowdown and we are nearing a bear market, investors are very interested in where earnings are likely to go.

The financial sector has led with lower earnings expectations as these firms come to grips with the excesses of the credit markets over the last several years. This sector comprises about 17% of the S&P 500, so it can have a significant influence on the performance of the market.

Negative news, however, has been coming out on nearly all sectors of the economy, and this negative bias has been priced into most securities already. What does this mean for your investments this season? For the most part, it means if a company does not miss their estimate, the stock will not drop much. Many companies have been announcing lower expectations for this earnings season and those expectations have already been priced into the stock.

In some cases, the lowered expectations have been more than priced into the stock, and current-quarter earnings will have little effect on share value – as long as the company at least meets the lowered expectations, that is. If they miss, then all bets are off.

What will be more telling are their forward-looking statements. If they anticipate deeper issues in the coming months, their stock price will drop, possibly dramatically. On the other hand, favorable statements could have the opposite effect.

When looking at a company for a possible earnings play, check out past statements and see how accurately they have predicted EPS in the past. Companies with forward statements in line with those results tend to have less volatility when announcing bad news. These are the types of companies you want to consider for earnings plays.

Check out what the insiders are doing. When a stock has been dropping, insiders who think the stock will be going back up may hold on. In fact, they may even add to their positions, taking advantage of bargain prices. When share prices drop and insiders stay on board, it usually means good things for the company.

Is the company buying back its own stock? If the company is buying back its stock, it could be a good sign. The benefit here is two-fold. Since the company has faith in future price appreciation, you can too. Whether the company just wants to decrease outstanding shares or wants to raise capital in the future when share prices recover, the fact that there are fewer shares on the market will improve the value of any shares you have.

Keep these three things in mind as you look for earnings plays: What is the company saying about earnings now and in the future, and how accurate have they been in the past? What are insiders doing – buying, selling, or just holding on? Lastly, is the company buying its own stock?

All this said, here are a few stocks that could hold up through this earnings season.

Abbott Laboratories (NYSE: ABT, Stock Forum) is engaged in the discovery, development, manufacture, and sale of a diversified line of healthcare products. Over the past three years, the company has either met or bettered earnings estimates. There has been a bit of insider selling in the past few months, but the numbers are not out of line.

Apple Inc. (NASDAQ: AAPL, Stock Forum) designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking solutions. Insider selling has been relatively active, but no more than usual. The company has a history of not missing earnings estimates as well.

EI DuPont de Nemours & Co. (NYSE: DD, Stock Forum) operates and manufactures a range of products for distribution and sale to different markets, including the transportation, safety and protection, construction, motor vehicle, agriculture, and many other markets. The company has had a nice run of good earnings reports with only one negative announcement in the past three years. There has been little recent insider activity.

All of these companies report earnings later this month. If you are looking for a hedged trade on one of these stocks, you may want to consider a hedged trade on ABT. Look at the August 50/47.50 Bull Put spread for a 30 cent credit. That's a 13.6% return, and the stock has to fall 8.5% to cause a problem.

With earnings season, anything is possible. Keep a close eye on a few stocks you think are poised to jump or fall on earnings and get your trade in before they report. Remember, you may be wrong or the market may not react as expected, so don’t bet the house.

This week Investors Observer covers:

Earnings Season Preview – How to Spot and Play Potential Winners and Losers

Articles:

* A Possible Way To Boost Your Earnings + Lee’s take on DIS, CROX, DRI, BRK, and F 
* How to Find Hidden Value this Earnings Season
* How Can You Profit From Earnings Season Today?
* Three Mistakes to Avoid During Earnings Season

Click Here to read any of these articles.

Vic Wisemann is an equity option strategy analysts with Investors Observer. Mr. Wiseman manages several portfolios for the company and comments weekly on his insights, strategies, and tactics for playing the market to win.

DISCLOSURE: Mr. Wisemann owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he discusses in his articles.