After writing about the catalysts that may help prop the market higher next month, I feel pretty good about April.
The one villainous threat that may foil my Pollyanna plans is that companies will begin chiming in with their first-quarter earnings come mid-April. It may not be pretty. Analysts have been scaling back expectations, clearly motivated by the icy chill of the country's spending habits. Companies have been fighting back by cutting costs and trimming payroll, but will it be enough?
It's been a race to the bottom of the bottle between Wall Street and Corporate America.
This could be a problem for investors, working on the assumption that historically low P/E multiples make this a great time to buy. The wrench in that system is that as a company's profitability sinks, its earnings multiple heads higher.
Why chance it?
Where the growth stocks are
There are plenty of classic growth stocks that will take a breather this quarter. The economic crunch is too much, so analysts see them posting what will hopefully be a temporary dip in year-over-year profitability.
This doesn't mean that growth is dead. There are still many companies that will manage to take a few steps forward, even as they face fierce headwinds. Let's go over a few of them now, as promised.
| |
Current Qurater Est.
|
A Year Ago, Actual
|
Growth
|
|
Baidu (Nasdaq: BIDU )
|
$0.76
|
$0.60
|
27%
|
|
Google (Nasdaq: GOOG )
|
$5.01
|
$4.84
|
4%
|
|
Green Mountain Coffee (Nasdaq: GMCR )
|
$0.36
|
$0.23
|
57%
|
|
Hansen Natural (Nasdaq: HANS )
|
$0.36
|
$0.29
|
24%
|
|
Netflix (Nasdaq: NFLX )
|
$0.31
|
$0.21
|
48%
|
|
NetScout (Nasdaq: NTCT )
|
$0.22
|
$0.12
|
83%
|
|
Panera Bread (Nasdaq: PNRA )
|
$0.56
|
$041
|
37%
|
Source: Yahoo! Finance.
Anyone who has followed Baidu's meteoric growth since it went public four years ago may be disappointed by the mere 27% bottom-line advance that analysts see for the current quarter. They shouldn't be. Between China's slowing economy and the company's brand-rattling advertising scandal, things could be worse. Thankfully, Baidu is still growing. The company's guidance calls for revenue to grow by 36% to 39% for the current quarter, and China's leading search engine appears to be bouncing back after November's smack.
Google is the only stock on the list that isn't expected to grow its current quarter's earnings by at least 24%, but it's here for a reason. The advertising meltdown is old news. You see some of the country's largest media giants trading in single digits and lesser search engines are going the wrong way. Google, on the other hand, is still moving forward, even if 4% growth is a far cry from what shareholders signed up for.
Green Mountain Coffee Roasters has been a recessionary winner. Its one-cup brewers have been soaring in popularity as thrifty ways to score premium flavored coffees without having to put up with a barista's ransom.
Hansen Natural's Monster Energy may not be as globally ubiquitous as Red Bull, but it's been a huge growth driver for Hansen in recent years. The energy drink market has run into a few speed bumps, but the market for fizzy adrenaline is showing no signs of going away.
Netflix is a no-brainer when it comes to finding stocks that will clock in with growth for the March quarter. The DVD rental specialist tacked on 600,000 more subscribers in just the first six weeks of 2009.
NetScout is a niche tech player, but an important one. It monitors uptime for high-speed networks, something that is huge in everything from online brokers to defense companies that can't afford to be down. Timely acquisitions may have boosted revenue last year, but Wall Street is expecting some serious bottom-line growth now.
Panera Bread is making more dough, in every sense of the word. The company may have stumbled in 2007, but it was one of the stock market winners of 2008. It is expected to continue its winning ways early in 2009, bucking the trend of restaurant chains that are struggling.
Growth matters, especially now
These are just some -- though clearly not all -- of the stocks that investors should be looking at right now. If their fundamentals aren't enough to sway you, just consider how things may play out next month.
If stocks go nowhere next month, stocks with declining profitability will close out the month with pricier earnings multiples. The companies bucking the trend, on the other hand, will find their P/E ratios shrink under the same scenario.
Take some time over the weekend to pull up quotes on your portfolio. How many of them are expected to grow their earnings this quarter? They won't all be heading higher, but if you find too many of them going the wrong way it may be time to revisit your portfolio.
You may as well do it now. April is just a few weeks away.
Some other ways to get down with the Dow:
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