5 Reasons to Worry About 2012

As soon as 2011 counted down to zero -- and we began to sing something about old acquaintances -- it was time to get excited about 2012.

The economy isn't perfect, but it's showing some signs of life. Unemployment levels are still high, but companies are operating more efficiently with the folks they have. Surely corporate America is in for a strong year of bottom-line growth, right?

Well, not right.

Every week I single out a few companies expected to post lower quarterly results than they did a year earlier. I follow that up with a list of companies that will thankfully post actual earnings growth.

I'm going to do things a little differently right now. I am going to go over five publicly traded companies that analysts see earning less here in 2012 than they did in 2011. They may be in the minority now as Wall Street generally waxes positive on the profit potential of most companies, but there are more than a few companies to keep an eye on that are going the wrong way.

Company

2011 EPS (estimated)

2012 EPS (estimated)

My

Watchlist

Annaly Capital (NYSE: NLY  ) $2.41 $2.29 Add
Corning (NYSE: GLW  ) $1.79 $1.71 Add
Dangdang (Nasdaq: DANG  ) ($0.35) ($0.55) Add
Strayer Education (Nasdaq: STRA  ) $8.83 $7.09 Add
Exelixis (Nasdaq: EXEL  ) $0.04 ($0.92) Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Annaly Capital.

The real estate investment trust investing in mortgage-backed securities is popular around Fooldom, largely for its chunky 14.2% yield. Yes, that's not a typo. The problem is that the niche itself lost investors money last year, as meaty dividends weren't enough to offset larger losses at some mortgage REITs. More specific to Annaly's situation, what do you think happens to a REIT's yield if its earnings shrink? We may be about to find out this year.

Specialty glass giant Corning has been strumbling lately. Strumbling? Sure, that's when a company is both stumbling and struggling. Look it up. It probably exists. Corning hosed down its fourth-quarter guidance on soft demand for its Gorilla Glass, lower glass prices in general, and losing a contract with a major South Korean customer. Things have to get better? Not really. The pros now see Corning's profitability dipping slightly in 2012.

Dangdang went public a little more than a year ago as a fast-growing Web-based retailer. Books are Dangdang's specialty, though it's been expanding into bigger ticket items. Unfortunately, it's not easy running an e-commerce operation in China where fulfillment costs can be prohibitive. Dangdang seemed to be closing in on profitability early last year, but now the profitless e-tailer is posting widening deficits.

For-profit post-secondary educators have gone from being seen as all-weather recession-resilient darlings to a problematic industry where aggressive marketing, dubious educational accomplishments, and terrible student loan repayment rates are eating away at key players. Strayer's profitability fell in 2011, and the pros see it losing ground again in 2012.

Finally, we have Exelixis. The biotech working on potential cancer treatments has had a year of ups and downs on the regulatory approval front. It did manage to squeeze out a rare profit along the way, but Wall Street's ready for another steep deficit this year. Perhaps even more problematic -- eyeing the next four quarters -- is that analysts see the company's deficits accelerating with every passing quarter.

Why the long face, short-seller?
This doesn't necessarily mean that investors should run the other way from these stocks. Exelixis may finally gain the FDA approval it seeks. Who knows where Annaly will be a year from now if the volatile nature of the mortgage-backed securities market actually improves.

However, as things stand right now, these aren't pretty places to be.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. I wasn't tapping into some secret data bank to pull out the projections for the year that lies ahead. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

If five reasons to worry aren't enough, let's make your future No. 6. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever, so check it out now.

The Motley Fool owns shares of Annaly Capital Management and Exelixis. Motley Fool newsletter services have recommended buying shares of Exelixis, Annaly Capital Management, and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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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 January 05, 2012, at 2:10 PM, hiddenflem wrote:

    Dear Rick, with all due respect the superficial analysis of EXEL in this article contributes little to nothing. Of course EXEL will not be profitable in 2011-they are rolling out large trials for their drug Cabo which is what they should be doing at this stage. They are a developmental stage biotech after all. And I think they are well positioned to cover much of the anticipated costs through existing cash, partnerships on other compounds and selling the rights to Cabo for other continents. And no, they won't be getting approval in 2011 for Cabo...we already know the projected timelines. There was no reason to mention exel here, it's a dilution of the Motley Fool brand to do so IMHO.

  • Report this Comment On January 06, 2012, at 11:06 AM, webmind wrote:

    I find it a bit strange that you write an article with 5 things to worry about in 2012 and conclude you are less worried.

    Logically incoherent. People are looking for guidance, not confusion disguised as clever wit.

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