3 Predictions for This Week

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I went out on a limb last week, and now it's time to see how things played out.

  • I predicted that Groupon (NAS: GRPN) would close higher on Tuesday. A busted IPO that had lost more than half of its value heading into a credibility-restoring earnings report on Monday night seemed like a good combination. It paid off. The daily-deals leader came through with a strong quarterly report, and the shares opened 27% higher on Tuesday morning. A market sell-off erased most of those gains later in the day, but Groupon shares still closed out the day nearly 4% higher. I was right.
  • I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average. (INDEX: ^DJI) . This was a consistent winning call during the first quarter, but the Dow 30 has won most of the early rounds this quarter. Well, it was a brutal week for the market, and that doesn't usually end well for the secondary stocks. The Dow fell by 3.5% on the week, but the Nasdaq took a harder 5.3% tumble. I was wrong.
  • My final call was for Home Depot (NYS: HD) to beat what Wall Street analysts were projecting on the bottom line in its latest quarter. The leading home-improvement retailer has been doing that consistently over the past year, so why get in the way of a favorable trend? Well, the retailer earned $0.65 a share, exactly what analysts were expecting. I was wrong.

One out of three? I'm starting to miss the previous week, when I nailed all three.

Let me once again whip out my trusty, dusty, and occasionally accurate crystal ball to make three calls that may play out over the next few trading days.


1. Pandora will close higher on Thursday
Pandora Media (NYS: P) has been one of the many ballyhooed dot-com IPOs to crash and burn over the past year. The music-discovery website operator went public 11 months ago at $16. Despite heady growth and unexpected quarters of profitability, the market hasn't cared. Pandora begins the new trading week in the single digits.

Well, Pandora reports on Wednesday night, and the company's most recent performance metrics have been encouraging. There were 51.9 million active listeners at the end of last month, 52% ahead of where Pandora was a year ago.All of the ingredients are in place for Pandora to put out a strong report, and the suppressed stock price is ripe for a bounce on the better-than-expected news.

2.The Nasdaq Composite will beat the Dow this week 
Betting on tech over stodgy blue chips was a steady winning bet for me earlier this year. Investors have been nervously rotating out of the tech bellwethers in recent weeks, and that's been making this call a bad bet lately. It seemed so easy when the market was pulling off back-to-back quarters of double-digit percentage gains, but I'm going to stick with this one. Most of the names in the composite are just too cheap at this point.

The market is ripe for the tech-stacked secondary stocks to continue to outpace the 30 megacaps that make up the Dow Jones Industrial Average.

3. PetSmart will beat Wall Street's earnings estimates
Some stocks are just flat out better than others.

PetSmart (NAS: PETM) is a leading pet-supplies retailer that also offers basic veterinary services at its stores and even high-end boarding for pets at some of its locations.

Now, they always say that we won't neglect our pets. Pet supplies seem to be an all-weather industry, as long as everyone has holes in their pockets (and not just because they gave their pants to their dogs as chew toys). If analysts say that the company earned $0.73 a share in its latest quarter, I'll whip out a "greater than" sign. History's on my side!

One of my best tricks to beating the market is finding stocks that perpetually land ahead of the prognosticators. Let's go over the past year of earnings reports.

QuarterEPS EstimateEPSSurprise
Q1 2011$0.55$0.6111%
Q2 2011$0.51$0.546%
Q3 2011$0.48$0.504%
Q4 2011$0.90$0.911%

Source: Thomson Reuters.

Things can change, of course. I realize that the trend itself isn't very comforting, as the margin of the beats has narrowed with every passing quarter. However, there are no signs that PetSmart is slowing down now. Everything still seems to be falling into place for another strong quarter on the bottom line.

Three for the road
Well, there are three predictions right there. Let's see how I fare this week. If you like to stay on top of what happens next -- and I'm guessing you do, because you're reading this article -- how about checking out The Motley Fool's top stock for 2012? It's a free report, but only for a limited time, so check it out now.

At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Home Depot and PetSmart. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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