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, 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 will be forecast to lose money, but upend the analysts' apple cart by recording profits. You can't actually calculate by how much it beat the estimates (7th grade math tells us we can't divide by zero or less!), but it's still useful to understand why that company managed to exceed expectations.

Company

CAPS Rating

Last Qtr. EPS Estimate

Last Qtr. EPS Actual

Est. LT Growth

Activision Blizzard (Nasdaq: ATVI  )

*****

$0.04

$0.09

14%

Goldman Sachs (NYSE: GS  )

**

$4.01

$5.59

7%

Solarfun Power (Nasdaq: SOLF  )

***

$0.19

$0.35

18%

Source: Motley Fool CAPS and Yahoo! Finance.

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.

A real shoot-'em-up
Losing two big-name game developers to rival Electronic Arts (Nasdaq: ERTS  ) rattled the market's confidence in Activision Blizzard's ability to continue pumping out popular game titles. After all, Activision's Call of Duty: Modern Warfare 2 clocked in with more than $550 million in sales last year, surpassing the half-billion in sales that previous champ Grand Theft Auto IV brought in the year before.

Obviously, whether we're talking about Activision, EA, or Take Two Interactive (Nasdaq: TTWO  ) , the ability to crank out money-making games is crucial. If Activision were a pharmaceutical company, Wall Street would be singing the praises of the pipeline of titles it's bringing to market. Activision just signed a 10-year publishing deal with Bungie, developer of the best-selling Halo series. StarCraft 2 is due for release in the third quarter, with analysts predicting at least $270 million in revenue over its first three months. And perhaps most importantly, World of Warcraft is slated to deliver a new release to its 12 million paying subscribers in the fall. Next year, the company will also reboot Blizzard's popular Diablo franchise.

Perhaps Activision's stock is depressed because gamers remember the debacle of Duke Nukem 2, the notorious game that could never quite make it to market, despite overwhelming demand. But at just 13 times 2011's earnings, others simply think this stock is cheap. CAPS member Skyshark29 appreciates the depth of Activision's pipeline:

Lots of hot games to be released in the near future, all potential and expected blockbusters. WOW Expansion, StarCraft II, and DIablo III all slated for late year release should allow [Activision] to outperform all of it's peers over the next year or so. World of Warcraft continues to dominate the sector, and the latest expansion will only help to strengthen that hold. 

All that glitters
Investment banking giant Goldman Sachs has its own pipeline to produce winning results time after time, despite the SEC fraud charge hanging over its head like the sword of Damocles. It remains the go-to firm for gigantic financing deals. CAPS member tbapicks thinks the company could test new lows, but admits that it won't disappear:

Too much bank negative hype has accumulated against this and other financial stocks. Also expect downgrade through summer. It is not going away, but it will test the 120's to 110's.

Lights out
When Solarfun Power reported earnings that far outstripped Wall Street's expectations, it also increased its previous forecast of shipments by 8%. Now the photovoltaic cell maker says it could ship as much as 650 megawatts this year -- but is its enthusiasm misplaced? Orders have surged in Germany, as developers aim to cash in before subsidies there expire. But once the orders are fulfilled, they'll likely drop considerably.

Additionally, Solarfun, like Trina Solar (NYSE: TSL  ) and a number of other solar companies, has significant exposure to the freefalling euro. Any further deterioration in the currency could come back to haunt Solarfun.

The CAPS community seems relatively unconcerned about the euro's impact. Perhaps they believe, as CAPS member exitplan does, that the Chinese government will prop up the solar industry. Roughly 93% of the more than 1,200 CAPS members who've rated the solar concern believe it will outperform the market. Now's your chance to head to the Solarfun Power CAPS page, and tell us whether the company will still be having fun in the sun going forward.

Yukking it up
The market's rally, once mostly fueled by low-quality stocks, now drags most others along, based on easier year-over-year comparisons. If you think there's some funny business afoot, let us know -- head over to Motley Fool CAPS and sound off.

Take-Two Interactive Software is a Motley Fool Rule Breakers choice. Activision Blizzard and Electronic Arts are Stock Advisor recommendations. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2010, at 4:12 PM, starpark88 wrote:

    Do you mean Duke Nukem Forever? The game in development for 13 years. DNII was released in 1993.

  • Report this Comment On June 01, 2010, at 10:46 PM, sailrick wrote:

    China is loaning TSL $4 billion and STP $7 billion.

    China will spend $454 Billion helping renewable energy industries in China in the next 5 years.

    They are building a Solar City, where there are reportedly 800,000 people already working in the solar industry. There are over 100 solar companies there. That includes solar water heating, photovoltaics, installers, etc.

    In the U.S. there is sure to be legislation that will boost renewable energy. - Ater the gulf oil gusher, there will be (hopefully) more support for developing clean energy. More and more states have renewable energy standards.

    Besides China and the U.S., there are lots of other countries that will eventually be big markets for renewables. If you live in a second or third world country in a rural area, where there really isn't much in the way of electrical grid infrastructure, locally generated renewably energy is a no brainer. As costs come down, these markets will grow.

    JASO's customers are more diversified outside Europe than most of the others.

    Others considering solar stocks might want to think about doing what I do. I have a basket of solar stocks. I have 10 of them, 3 wind stocks, 3 battery stocks, 1 flywheel tech stock and a bioplastics stock. (MBLX)

    Trina Solar has been my best solar stock, over the past few years, and still looks like a winner. ( I have been more heavily weighted in TSL than most of the others, which is a contributing factor.) And I have taken profits a few times, sometimes buying more on dips.

    In the past I found this small basket to be a good approach with biotech stocks, which are also prone to volatility, and uncertainty, but in potentially explosive emerging industry.

    I like SOLR (GT Solar) as a value play. Not as sexy as the solar cell and module makers, but they make the machinery to build solar cells and modules and wafers.

    PE 8.7 forward PE 7.4 PEG 0.17

    I often take quite small postitions when prices are low. I might buy more if the stock looks better over time. You don't need a huge position in a potentially explosive stock to boost your portfolio. Most of the solars have low valuations now. I wish I had more dry powder to take advantage. When we finally turn the corner into a bull market, these stocks should pay off handsomely, as valuations expand.

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