Here s a chicken-and-egg puzzle for stock investors. Which came first: Frenzied stock trading in response to earnings surprises, or the overwhelming likelihood that companies will report positive earnings surprises? I can t say for sure, but there s been a dramatic shift over the past two decades. For example, the proportion of earnings surprises that are positive jumped from 49% in the late 1980s to 76% by 2000, while price gains following positive surprises grew sharply larger, according to a 2006 study published in the Journal of Business Finance and Accounting. The study authors reported strong evidence that company managers or stock analysts adjust opportunistically the path of estimates within the quarterly reporting period.

In other words, as I ve written before, the game is rigged. Wall Street surprises are expected. Last quarter, more than three-quarters of the large, American companies that form the S&P 500 index beat earnings estimates surprise! More than 40% of them have beaten estimates in each of the past four quarters.

For long-term stock investors, the best way to respond to this odd environment is probably to ignore surprises and focus instead on changes in sales and earnings growth trajectories. For short-term traders, I m not sure what the new rules are for earnings season, which is now underway for the first quarter. Presumably, traders must judge not only whether reported numbers are better than forecast ones, but whether they re better by a larger margin than the ones other investors were already anticipating. During the 1990s dot-com stock bubble, it was fashionable to call this highest, mystical expectation the whisper number.

I m not sure what the whisper numbers are for the three companies listed below, or even where such things are whispered. However, I do suspect that these companies have created high expectations. They ve blasted past earnings forecasts by at least 20% in each of their past four quarters. Also, the bar for them has recently been lowered a touch. Estimates for each company s upcoming earnings report have fallen the past four weeks. Does that mean they ll beat earnings forecasts? I wouldn t be surprised.

Sara Lee

EPS surprise last quarter: 74%
Next report date: May 6

Packaged food seller Sara Lee (SLE) shed some of its non-food products and made a push into coffee just in time for the recent recession, which turned consumers away from restaurants and coffee shops and toward packaged products sold at supermarkets. As a result, the company s profit has swelled, and its operating margin recently hit a six-year high. Further improvements might be difficult, analysts say, because commodity costs are rising and price competition in baked goods is increasing. The good news for stockholders is that shares seem reasonably priced at 14 times forecast profit, the dividend yield is a healthy 3.2% and this quarter s earnings forecast looks achievable. Last quarter, analysts were looking for 23 cents a share and the company delivered 40 cents, yet this quarter s estimate stands at just 22 cents a share.

Caterpillar

EPS surprise last quarter: 46%
Next report date: April 26

Rising commodity prices bode well for Caterpillar (CAT). An estimated 60% of its profit is tied to producing, transporting and processing natural resources. During the peak of America s housing bubble, Caterpillar earned more than $5 a share per year. This year s forecast stands at about half that. With shares trading at about 25 times earnings, investors seem to be expecting a quick return to boom times. It s possible. During Caterpillar s last three cyclical earnings recoveries, its sales increased by 18% a year while its operating margin on new business reached 23%, according to Avondale Partners, an investment bank. If Caterpillar can achieve 20% yearly sales growth and a 20% operating margin on new business this time around, Avondale concludes the firm will earn just over $6 a share by 2012.

Goldman Sachs

EPS surprise last quarter: 58%
Next report date: April 20

The Securities and Exchange Commission has charged Goldman Sachs (GS) with fraud, alleging it misled investors into buying shaky mortgage securities. Seth Myers of "Saturday Night Live" reported the incident on the program s spoof news segment, Weekend Update, saying If convicted Goldman could... what? ...make $10 billion? The joke underscores Goldman s astonishing profitability during a year when many American firms were fighting for survival, and when banks, including Goldman, received government financial support. Profits for Goldman peaked at around $25 a share in bubbly 2007. Last year, profits topped $22 a share. Today s stock price is just seven times that figure, suggesting investors are skeptical about the firm s winning streak continuing.

UPDATE: After the publication of this article, Goldman Sachs reported earnings of $5.59 a share, exceeding the $4.01 consensus estimate of analysts surveyed by Thomson Reuters.