5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
China's exports are slowing. Europe's still a mess. An investment banking giant shocked the market last night with a huge $2 billion loss as the result of a hedging strategy gone bad.
It's not just iffy news at the macro level.
There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (estimated)
Year-Ago Quarter EPS
|J.C. Penney (NYS: JCP)||($0.10)||$0.30||Add|
|SINA (NAS: SINA)||($0.23)||$0.25||Add|
|E-Commerce Dangdang (NYS: DANG)||($0.24)||$0.01||Add|
|Applied Materials (NAS: AMAT)||$0.24||$0.38||Add|
|Marvell Technology (NAS: MRVL)||$0.21||$0.29||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with J.C. Penney.
Investors cheered when J.C. Penney hired Apple Store guru Ron Johnson as its new CEO. The guy that took the mall's hottest concept from its genesis to a retail empire with 300 stores and $15 billion in annual sales seemed like a slam dunk for the struggling department store chain.
He introduced the company's "Fair and Square" pricing strategy to great fanfare back in February. J.C. Penney would set itself apart from most department store chains that rely on frequent sales and perpetual markdowns on aging inventory by offering everyday low pricing.
The jury's still out, but investors better not be expecting immediate results.
Analysts see last year's profit reversing into a small deficit this time around. They also see sales falling 12% during the quarter and declining 6% for the entire fiscal year. They're only holding out for flat top-line growth next year. Johnson's turnaround strategy may have sounded great at first, but it doesn't appear to be much of a winner early in its execution.
SINA and Dangdang are Chinese dot-com speedsters that are struggling with profitability.
SINA has been consistently profitable as a well-trafficked Internet portal over the years, but its success with Weibo -- the fast-growing Twitter-like micro-blogging service -- finds the company investing in the platform. Positioning Weibo for a healthy future is crushing margins now.
Dangdang is an online retailer that got its start as a bookseller. The company is now moving on to bigger-ticket items. If this sounds vaguely familiar to this country's e-tail darling, it's probably not a coincidence. Dangdang's challenge is to prove that it can generate respectable margins. It obviously won't happen next week, as it joins SINA (and J.C. Penney) in likely posting losses to reverse year-ago profits.
Applied Materials is a leading maker of semiconductor manufacturing equipment. This is naturally a very cyclical business. Analysts see a profit of $0.24 a share next week, well short of the $0.38 a share it rang up a year earlier.
Marvell Technology reports on Thursday. Wall Street's holding out for net income of $0.21 a share. The semiconductor giant earned $0.29 a share during the same quarter last year.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translate into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
If five reasons to worry aren't enough, let's make your future No. 6. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever so check it out now.
At the time this article was published Motley Fool newsletter services have recommended buying shares of SINA. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.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.
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