These Stocks Laugh at Wall Street

In these heady economic times, Mr. Market seems to enjoy dogpiling on any stock that dares to fall short of analysts' estimates. To defy that trend, we're here to celebrate stocks that didn't merely meet Wall Street's predictions, but laughed in analysts' faces by leaving their miserly forecasts in the dust. The companies below have all soundly trounced earnings estimates by 20% or more in the last quarter.

Sometimes a company forecast to lose money will upend the analysts' apple cart by recording profits. You can't calculate by how much they beat the estimates (seventh-grade math tells us we can't divide by zero or less!), but it's still useful to understand why they were able to exceed expectations.

Source: Yahoo! Finance and CAPS.
LT = long-term. EPS = earnings per share.

Nonetheless, beating estimates isn't enough to make a stock a winner. Analysts are notoriously lousy at forecasting results, and one-time items can sometimes push earnings over the top. Wall Street professionals typically don't include such extraordinary events in their forecasts.

Rather than focusing only on the past, we'll check whether analysts have a bead on future performance. With help from Motley Fool CAPS, we'll see which of the top companies listed above will have the last laugh.

Laugh, clown, laugh!
It might not be unlimited growth as far as the eye can see, but microwave backhaul provider Ceragon Networks is confident it will be able to attain its 30% to 35% target growth rate for revenue throughout the year. Profits are expected to grow even faster. Demand from wireless operators Verizon (NYSE: VZ) and AT&T (NYSE: T) is the catalyst here, as they need to upgrade their equipment to migrate to their new 4G networks in response to customers' craving more bandwidth.

It's also a hopeful sign for DragonWave (Nasdaq: DRWI), which has been operating under a cloud of doubt about whether it will lose contracts with current customers. Whatever the outcome of those negotiations, it suggests there will be plenty of business for everyone.

The CAPS community is just as confident that Ceragon Networks will win the lion's share of business, as nearly 98% of those rating the backhaul equipment provider indicate it will outperform the broad market averages.

When less is more
International sales have been falling for a while now for cast-resin transformer manufacturer Jinpan International. While management suggested last quarter that it was a temporary decline due to shipping patterns, preliminary first-quarter results seem to be saying there might be something more, because guidance for those sales was flat.

Further, the problem with earnings this time out has to do with domestic competition in China. Declining raw material prices have allowed competitors to offer better prices on products, causing Jinpan to respond in kind.

We'll know more when Jinpan actually reports earnings next month, but it doesn't seem likely it will be laughing as much as it did in the fourth quarter.

News of the preliminary numbers whacked the stock, and many CAPS members figured that with management keeping its full-year guidance intact, this might be a buying opportunity. Not so Interpol10, who says it's going to need to deal more effectively with competitive pricing:

Jinpan International's 2010 Q1 results left much to be desired - if they can't keep their preliminary unaudited net sales from dropping 40% every time the price environment becomes competitive I just can't see them performing well. It has potential to be great, but the management has to find a permanent solution to competitive pricing when the price of silicon steel falls.

A real shoot-'em-up
Can a video game based on America's Old West become as well-liked as the Grand Theft Auto franchise? Investors in Take-Two Interactive certainly hope so, as the video game maker's Red Dead Redemption is being released with a lot of hype.

CAPS member starpark88 thinks it can, and believes Take-Two is even better situated now than it was at the time of the Electronic Arts (Nasdaq: ERTS) merger fiasco:

But the upside is much higher. [Take-Two] has gone from having one major IP at the [Electronic Arts] bid, to quite a well developed library. We're not getting a $28 offer, but I can see us getting $15-$20, depending on RDR sales. [Activision Blizzard] needs the IPs as [CEO Robert] Kotick has murdered everything he can get his hands on, and has a nice $3 bln in cash on hand. [Electronic Arts] is a bit better in the IP department, but could start a bidding war.

It might be worth your while to play with an opinion on the Take-Two Interactive CAPS page for additional hit points.

Yucking it up
The market's rally has changed from being mostly fueled by low-quality stocks to dragging most others along based on lower year-over-year comparables. If you think there's some funny business afoot, let us know. Head over to Motley Fool CAPS and sound off.