5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
Sure, the S&P 500 has now closed higher in each of the past four months. The market's closing in on an all-time high. How confident are you that cuts in government spending and this year's end of the payroll tax stimulus won't derail the still-fragile economy?
The news isn't just iffy on the macro level. There are also 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
James River Coal
Source: Thomson Reuters.
Clearing the table
Let's start at the top with VeriFone. The provider of electronic payment solutions and retail enterprise solutions may not be a household name, but take a closer look the next time you're swiping a credit card at the register. VeriFone makes a lot of those machines.
Wall Street was holding out for another quarter of steady growth at VeriFone, but then the company crashed the party last week. Shares of VeriFone surrendered 42% of their value, becoming one of the week's biggest losers, after it served up bleak preliminary results. VeriFone blamed the weakness on soft overseas markets and order delays, but the bottom line on VeriFone's bottom line here is that a week ago the pros through that it would earn $0.73 a share.
That's history. The pros now see a pronounced decline in profitability.
Sarepta is expected to post a widening deficit on Thursday. Investors will argue that it doesn't matter. Sarepta's a promising biotech. The market's buying in today based on tomorrow's potential for Sarepta's treatment for Duchenne muscular dystrophy. It has performed admirably through the early clinical trials, and the payoff is substantial if it ultimately gains approval.
Yes, it's OK for Sarepta to be losing money. Biotech investors just have to make sure that their investments don't run out of money.
Sequenom is another company pegged to post a widening quarterly deficit on Thursday. The life sciences specialist provides diagnostic testing and genetic analysis solutions for the clinical research and molecular diagnostics markets.
Eyeing the table near the top of this article may be comforting. Sequenom posted a loss of $0.22 a share a year earlier during the same quarter, and now the pros are modeling a deficit of $0.23 a share.
That's not too bad. Right? Even a marginal beat would result in improving year-over-year performance. Well, don't bet on it. Sequenom has ended up posting wider losses than analysts were forecasting in each of the four prior quarters. The trend isn't very kind as it gears up for Thursday's report.
James River Coal is out of favor. Coal just isn't very popular with investors these days.
This is a cyclical industry, and James River Coal has a habit of bouncing in and out of profitability. The rub here is that this is shaping up to be the fourth consecutive money-losing quarter for James River. The last time that the company was on a losing streak this long was in 2008.
Finally, we have Inteliquent. The world's largest global Ethernet interconnection provider offers up networking solutions for enterprises.
Inteliquent surprised the market with a quarterly deficit three months ago, but this time investors are ready. They see a small loss at the networking specialist, reversing a healthy year-ago profit.
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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The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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