5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
Forget about the overseas calamity -- which isn't getting any better, by the way.
Mortgage rates in this country hit a historic low this week. Sure, it's great to know that you can pay less than 3% on a 15-year home loan these days, but what does this really tell us about the state of residential real estate and lending in general?
Anyone who thinks that real estate prices are low now may want to stick around to see what happens when mortgage rates head higher again and affordability shrinks.
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
|Altera (NAS: ALTR)||$0.39||$0.65||Add|
|JA Solar (NAS: JASO)||($0.15)||$0.41||Add|
|J.M. Smucker (NYS: SJM)||$0.99||$1.00||Add|
|Quiksilver (NYS: ZQK)||$0.02||$0.09||Add|
|Titan Machinery (NAS: TITN)||$0.38||$0.40||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Altera.
The supplier of custom logic solutions to the electronics industry is struggling these days. Analysts see profitability sliding 40% on a 19% decline in revenue. Bulls will argue that Wall Street has it wrong here, but don't assume that the firms watching this company are erring on the side of pessimism. Altera has missed analyst profit targets in two of the three previous quarters.
JA Solar's dilemma isn't news to anyone who's been paying attention to alternative energy stocks this earnings season. JA Solar becomes the latest in a long line of solar energy companies that were profitable a year ago but are losing money today.
There's more to J. M. Smucker than its signature namesake jellies, though odds are you probably haven't even come close to trying all 40 varieties of Smucker's jams, jellies, and preserves. The food giant also makes ice cream toppings, syrups, and Uncrustables crust-less sandwiches. Just last month it discontinued its Snack'n Waffles breakfast treats.
Wall Street's looking for Smucker to post a marginal dip in profitability when it reports on Thursday, but it's still a small step in the wrong direction.
Quiksilver is the retail chain specializing in casual life gear for outdoor sports enthusiasts. Its mix of branded apparel, footwear, accessories, and even snowboards is popular with its target audience, but that apparently isn't enough to deliver growth on the bottom line.
Finally, we have gear retailer Titan Machinery. The company operates a network of full-service agricultural and construction equipment stores. There are 96 dealerships across the United States and another 10 locations in Romania and Bulgaria. Despite solid growth in the past and opportunities for broadening its operations with timely acquisitions in this highly fragmented sector, the pros see profitability taking a small dip.
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 translates 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.
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At the time this article was published 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.