5 Reasons to Worry About Next Week
It's been an exciting week for fans of round numbers.
The S&P 500 cracked 1,400 for the first time since the financial crisis hit in 2008. Nasdaq broke through the 3,000 ceiling for the first time in ages.
The first time Nasdaq hit 3,000 was 1999 and the dot-com bubble was inflating. Thankfully, it truly is different this time. The market is reasonably priced on an earnings basis. There may be a few stocks that have outrun their fundamentals, but valuations for the most part are quite realistic.
However, it's not as if corporate America is playing along completely. 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
|Adobe Systems (NAS: ADBE)||$0.57||$0.58||Add|
|JA Solar (NAS: JASO)||($0.10)||$0.59||Add|
|Tiffany (NYS: TIF)||$1.42||$1.44||Add|
|Herman Miller (NAS: MLHR)||$0.27||$0.29||Add|
|The9 (NAS: NCTY)||($0.46)||($0.41)||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Adobe Systems.
Three months ago, analysts felt that Adobe would merely match the $0.58-a-share profit that the desktop publishing software giant rang up a year earlier. Now Wall Street sees the company behind Photoshop, Acrobat, and fancier editing tools falling just short.
JA Solar is in an industry that will inevitably be relevant, but solar energy stocks have been hammered lately.
Fellow Fool Travis Hoium recently lamented how demand has dried up in light of Germany and Italy cutting feed-in tariffs after installations grew faster than they expected, but things may not be as bad as worrywarts fear.
For now, it will still likely mean red ink for JA Solar. Many of JA Solar's peers that have reported in recent weeks have also reversed year-ago profits with deficits.
Tiffany is the jeweler of Breakfast at Tiffany's fame. The upscale retailer seemed to be in good shape until hosing down its holiday quarter guidance back in January.
Tiffany may have seen an uptick in sales internationally, but it was a blue Christmas closer to home, as Tiffany's flagship store in New York actually saw net sales decline for the seasonally potent quarter.
Herman Miller is the office furniture specialist that invented the cubicle. Don't hold that against the company. It's still a great gauge for corporate America. If companies are hiring again -- or at the very least willing to spend on upgrading the office furniture after years of budget-wrangling neglect -- it'll show up at Herman Miller.
How will that play out? Well, you already know, given the theme of the five companies on this list. The good news here is that Herman Miller has beaten Wall Street's expectations in its three previous quarters. The pros see the company only posting a minor dip in net income, so stretching its analyst-thumping streak to four quarters may result in growth on the bottom line.
Finally, we have Asian online gaming company The9. It's been a long time since The9 lost its license to run World of Warcraft in China, but that has helped it focus on its own titles. The problem is that it's probably looking at a wider deficit when it reports Wednesday.
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 singleshocking truth about your retirementthat you may not know. It's part of a free report that won't be around forever, socheck it out now.
At the time this article was published Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Adobe Systems. 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.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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