The "sell in May and go away" camp is kicking itself these days. The market rally that began in March has continued to inch mostly higher during the summer. The economy is also spitting out encouraging news for a change and wooing investors back to make the most of a recessionary rebound.
But don't get cocky. Not every company is worthy of its rally cap. If you don't believe me, check out some of the earnings reports that are likely to go the wrong way over the next few days.
Let's go over a few of the blue chips and seemingly recession-proof companies for which analysts see the arrows pointing down on the bottom line next week. Some of the names may surprise you.
|
Company
|
Latest Quarter's EPS (Estimated)
|
Year-Ago Quarter's EPS
|
|
America's Car-Mart (Nasdaq: CRMT )
|
$0.41
|
$0.45
|
|
Take-Two Interactive (Nasdaq: TTWO )
|
($0.68)
|
$0.93
|
|
Brown Forman (NYSE: BF-B )
|
$0.62
|
$0.69
|
|
Collective Brands (NYSE: PSS )
|
$0.33
|
$0.54
|
|
Jackson Hewitt Tax Services (NYSE: JTX )
|
($0.71)
|
($0.69)
|
|
ADCTelecommunications (Nasdaq: ADCT )
|
$0.14
|
$0.27
|
|
Joy Global (Nasdaq: JOYG )
|
$0.95
|
$1.03
|
Source: Yahoo! Finance.
Clearing the table
There will be several companies posting lower earnings next week, but these are just a few of the names that really jump out at me.
Let's start with America's Car-Mart. Selling automobiles was a thankless profession before the short-lived "Cash for Clunkers" promotion, but America's Car-Mart has been an anomaly. It has been growing during the market downturn, largely the result of its emphasis on the low-end distressed-used-car market. As the thrift-store equivalent of the auto retail space, the company hasn't had nearly the problems its larger counterparts have had moving wheels. Still, Wall Street thinks the surprising speedster will be pulling into reverse next week.
Take-Two Interactive is an easy mark. Grand Theft Auto IV was last year's best-selling game, so there's no way the renegade video-game publisher would come even close to the $0.93 a share it earned during last year's fiscal third quarter. However, who would have expected a loss -- a sharp deficit, actually -- out of Take-Two a year later?
Wine and spirits have some recession-resistant appeal. When times are tight, a lot of people try to drink their troubles away. But beverage stocks have given shareholders a hangover lately, as everything from the stronger dollar to the attractiveness of cheaper brands has hurt key players such as Brown Forman.
Collective Brands can't hide behind the "customers are trading down" excuse. The company runs Payless ShoeSource. If there's any company that should be thriving in this environment, it's a footwear retailer with the perfect name. Who doesn't want to pay less? Shoes are also something that wear out or are outgrown, regardless of financial fortunes. Yet surprisingly enough, analysts see earnings going the wrong way at Payless' parent.
May, June, and July are predictably moribund at Jackson Hewitt. The taxman, for the most part, hibernates, and Jackson Hewitt doesn't turn a profit during the quarter. So why is Wall Street braced for a slightly wider deficit? In this soft economy, most companies have scaled back dramatically on their operating overhead. This should be particularly evident during seasonal lulls.
ADC Telecommunications specializes in long-haul connectivity. This is just the kind of company that should be raking it in as broadband coats the globe. Investors aren't having any problem buying back into the ADC story. The stock has more than tripled since bottoming out in March. The fundamentals aren't keeping that promise, though, with quarterly earnings targeted to be cut in half next week.
Finally, we have Joy Global. This would seem to be a great time to be selling mining equipment. Worldwide demand for coal, ore, and other extracted minerals doesn't seem to be going anywhere over the long haul. Well, the one thing that is going away, according to analysts following the company, is Joy Global's bottom-line growth.
Why the long face, short seller?
Many of these stocks are market darlings in seemingly healthy sectors. When even discount can't ring up the sales, this isn't going to be a quarter to show your Jackson Hewitt accountant.
There is a silver lining, though. Investors are already braced for the worst with these reports. If there is an upside to this grim list, it's that lower profitability is already baked into next week's reports. So the door is open for unexpected surprises.
The more I think about it, the less worried I become.
Some other reads to get you through the weekend:
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