3 Predictions for This Week
I went out on a limb last week and came out with mixed results.
- I predicted that Red Hat (NYS: RHT) would close higher on Tuesday after posting quarterly results on Monday night. The provider of cost-effective enterprise software solutions did have a solid quarter. Revenue climbed 23% and adjusted earnings grew even faster. However, the market wasn't impressed, sending the shares 8% lower. I was wrong.
- I predicted that KB Home (NYS: KBH) would post a deficit in its latest quarter. Homebuilders aren't very popular after years of crumbling real estate prices, but analysts figured that KB Home would be good for a profit of $0.03 a share. I blew this one, too. KB Home had a surprisingly robust -- and profitable -- quarter.
- My final call was for Bed Bath & Beyond (NAS: BBBY) to beat Wall Street's profit targets, the way that the home-goods retailer has consistently done over the past year. I finally got one right, as the chain's quarterly net income of $0.95 a share bested the $0.88 a share that the pros were expecting.
One out of three? I know I can do better than that.
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. Mead Johnson Nutrition will bounce back
Mead Johnson Nutrition (NYS: MJN) is coming off a dreadful week.
Shares of the baby-formula maker shed 10% of their value on Thursday -- and another 5% on Friday -- after its Enfamil powder was pulled from Wal-Mart (NYS: WMT) shelves. A 10-day-old infant died of a bacterial infection and tests are being conducted to see whether the formula caused the tragedy.
This is a horrible situation.
Whether Mead Johnson Nutrition's product was the cause of the fatal infection or not, Enfamil is going to have a hard road back to regaining the confidence of parents. Brands do bounce back, though. From burgers to fruit juices to peanut butter, once companies do the right thing, consumers usually come back.
Mead Johnson Nutrition's reputation may not bounce back this week, even if it's actually cleared. However, I think investors will be more forgiving. I see Mead Johnson Nutrition's stock closing out the week higher.
2. The S&P 500 will close in positive territory for all of 2011
This has been a wild year for the market, but -- 51 weeks later -- we're essentially where we started.
The S&P 500 was posting slightly negative year-to-date returns through last Thursday's close, and Friday's strong day pushed the popular index back into positive territory. The S&P 500 is now trading 0.6% higher in 2011, and my prediction here is that it will stay positive.
Does this "Santa Claus rally" have legs? A rare case of legislative compromising and stocks that are genuinely cheaper after a year of earnings gains outpacing capital gains should help close out the year on a good note.
3. Zynga will bounce back this week
It's been a rough week and change of publicly traded life for Zynga (NAS: ZNGA) . The social gaming darling behind Words With Friends, FarmVille, and Mafia Wars 2 closed 5% below its IPO price on its first day on the market two Fridays ago. Zynga shares bucked the generally buoyant market to inch lower last week.
I'm not entirely sold on Zynga being worthy of its $7 billion valuation over the long haul, but I think reports of its demise given weakening trends at some of its marquee titles is overblown. Zynga remains a growing company despite critical reports of its corporate culture and the faddish nature of social gaming.
I think this week will have more opportunists taking advantage of picking up Zynga for less than the $10 a share that institutional investors were willing to pay two weeks ago than those losing confidence in the company and cashing out.
Zynga may not trade in the double digits right away, but I think this will be a good week for the company to close higher than Friday's final price of $9.39.
Well, that's three predictions right there. Let's see how I fare this week.
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At the time this article was published The Motley Fool owns shares of Wal-Mart Stores.Motley Fool newsletter serviceshave recommended buying shares of Bed Bath & Beyond and Wal-Mart Stores.Motley Fool newsletter serviceshave recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.