These Stocks Laugh at Wall Street

Nowadays, 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 beat Wall Street's predictions, but laughed in analysts' faces by leaving their miserly forecasts in the dust. The companies below trounced earnings estimates by 20% or more for the latest quarter.

Sometimes a company will be forecast to lose money, but it'll upset the analysts' apple cart by recording profits. You sometimes can't actually calculate by how much they beat the estimates (7th-grade math tells us we can't divide by zero or less and get a meaningful result), but it's still useful to understand why they were able to exceed expectations.

Company

CAPS Rating (out of 5)

Latest Quarter EPS Estimate

Latest Quarter EPS Actual

Estimated LT Growth

China Agritech (Nasdaq: CAGC  )

**

$0.14

$0.18

15%

DryShips (Nasdaq: DRYS  )

***

$0.22

$0.30

12%

Isis Pharmaceuticals (Nasdaq: ISIS  )

***

($0.17)

($0.10)

30%

Source: Yahoo! Finance.

These three companies beat estimates recently, but that isn't necessarily enough to make the 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 companies listed above will have the last laugh.

Laugh, clown, laugh
The old thinking was that China's massive stimulus program was a success, though it was perhaps causing the economy to overheat. Now the worry is that the government has slammed the brakes too hard on expansion.

What is never discussed is that the government spending program might be a big failure, and all those big gains in China's economy were simply the effects of a country highly dependent on government largesse. Strip out government infrastructure spending, and China's economy barely grew 1% last year. These kinds of programs have consequences, and China's financial future is less secure than it used to be.

The agricultural sector also faces concerns about economic expansion because export growth has slowed, though the shares of China Agritech and China Green Agriculture  (NYSE: CGA  ) have bounced off recent lows. AgFeed Industries (Nasdaq: FEED  ) may find itself caught between rising feed prices and falling hog prices as its prices continue to sink.

CAPS member robertmartina said to expect short-term pain for China Agritech, which was right, but also said the stock was ready to soar. The stock is up 38% over the past month:

premier Chinese Ag company...real money rides on this one...punished recently, but expecting a breakout soon...huge growth potential and plenty of cash on hand...long-term gem!

Light at the end of the tunnel
In China's steel industry, prices could drop 10% in the back half of the year as demand drops and inventories increase. At the same time, though, numbers out of one U.S. port suggest the holiday season could be the best in a while, with reports from the Port of Long Beach, Calif., saying June was its busiest month ever.

Shippers like DryShips and Diana Shipping (NYSE: DSX  ) face a glut in vessels. CAPS member jwhaley1210 lacks confidence in DryShips' management to do what's needed to improve things, but 88% of the community rating the dry-bulk shipping specialist think otherwise.

Go to the DryShips CAPS page and add your opinion on this stock.

Dim the lights
It's deja vu all over again at Isis Pharmaceuticals, which reported that cholesterol drug mipomersen had similar outcomes to phase 3 data reported earlier this year. Isis and Genzyme (Nasdaq: GENZ  ) may find their treatment has a narrower patient population to attract, which doesn't bode well. Isis then reported an earnings loss that was wider than anticipated because research and development spending rose. Management hopes full-year losses will be smaller, though, because of a new partnership with GlaxoSmithKline.

CAPS All-Star and biotech guru zzlangerhans thinks investors made a mistake in selling off shares.

In the rush to sell, investors have likely discounted the fact that Isis' 900M market cap will be supported by about 550M in cash once earnings are released August 9. Isis appears to be the corporate leader in anti-sense technology, despite mipomersen's failings, and has other anti-sense drug candidates to treat diabetes advancing in their pipeline. Besides the potential of these new drugs, the technology platform and strong financial position will keep Isis on the short list of companies that may be acquired once the pendulum swings back in the direction of growth.

Yukking 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.

China Green Agriculture is a Motley Fool Global Gains pick. The Fool owns shares of China Green Agriculture and GlaxoSmithKline. Try any of our Foolish newsletter services today, 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. The Motley Fool has a disclosure policy.


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