5 Reasons Not to Worry This Week

By Rick Aristotle Munarriz | More Articles
February 13, 2012 | Comments (1)

Things are starting to look up in 2012, but it's not all perfect.

There are still some rough patches out there. Greece's parliament voted to approve austerity measures earlier this morning to avoid a messy default, but it's not a long-term fix. China -- which had been one of the stronger economies during the global downturn -- is now facing the shrinking of both its exports and imports.

I recently went over some of the companies that are targeted to post lower quarterly profits when they report this week.

Thankfully, they're the exceptions and not the rule. Let's go over some publicly traded companies that are expected to stand tall this week by posting year-over-year improvement on the bottom line.

Company	Latest Quarter EPS (estimated)	Year-Ago Quarter EPS	My Watchlist
American Capital (Nasdaq: ACAS )	$0.20	$0.19	Add
Ancestry.com (Nasdaq: ACOM )	$0.34	$0.25	Add
Baidu (Nasdaq: BIDU )	$0.91	$0.50	Add
Vonage (NYSE: VG )	$0.11	$0.06	Add
Build-A-Bear Workshop (NYSE: BBW )	$0.52	$0.36	Add

Source: Thomson Reuters.

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

Investors buying into the business development company for its once-juicy yield were understandably frustrated by its move to suspend its dividend. The merits of a recent buyback are being actively debated by bulls and bears. Lost in all of the drama and the steep losses during the financial crisis is that American Capital is posting respectable profitability now.

Ancestry.com mans the country's largest genealogy website. Folks are apparently willing to pay to dig deeper into their family trees judging by Ancestry's growing subscriber base. Things should pick up again, as NBC kicked off the third season of Who Do You Think You Are? earlier this month.

The popular Friday night show partners with Ancestry.com to trace the lineage of famous celebrities, cleverly feeding the inquisitive appetite of viewers into doing the same. Ancestry's quarter ended several weeks before the third season debuted, but analysts still see heady growth here.

Baidu is China's leading search engine. Market-research firm Analysys International pegs Baidu's share of the market at a healthy 78.3% slice in the fourth quarter.

China's economy is running into some near-term challenges, but the world's most populous nation -- and now the world's largest concentration of Internet users -- can't be denied. Baidu's been a speedster through its nearly seven years of public trading, and the 82% bottom-line burst that Wall Street is projecting for in its latest quarter is too scintillating to ignore.

Vonage wasn't as celebrated when it went public at $17 a share a year after Baidu's debut. The Web-based consumer telephone service tanked. In a head-shaking incident that Vonage has been trying to live down, it actually had to go after deadbeat customers who agreed to buy shares of the IPO but balked when they saw the stock fall.

Life has been kinder to Vonage these days. It may be as competitive as ever in the Internet telephony niche, but Vonage is routinely profitable. It has posted three consecutive quarters of earning exactly $0.10 a share. Wall Street sees a record $0.11 a share showing this time around.

Finally, we have Build-A-Bear Workshop.

I was surprised to see the stuffed animal retailer make the cut. Store comps were plunging year after year since peaking in 2004. The novelty of overpriced bears stuffed to life seemed to wear thin. Sales are still being challenged, but the analysts still following Build-A-Bear see a dramatic spike in profitability during the seasonally potent holiday quarter.

Cross those fingers, but know the fundamentals
Investors in these five stocks have a right to be excited. They are all improving their financial situations. They are worthy of the gains that the market rally has bestowed upon them over the past year.

I wouldn't be uncomfortable owning any of these companies. They're doing the right thing, regardless of Mr. Market's mood swings.

The expectations may be high, but these five stocks wouldn't have it any other way.

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Motley Fool newsletter services have recommended buying shares of Ancestry.com and Baidu. 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 icon found on every comment.

Report this Comment On February 13, 2012, at 10:47 AM, vonhans22 wrote:

Well, I hate to shoot myself in the foot, but I'm a little peaved right now having over-leveraged myself in ACOM positions at $31.28 / share. Nonetheless, upon further review of this stock since the time of that purchase, I will give you my unbiased opinion...
First of all, I am gravely concerned when I see a social networking site (We'll call it social networking, although no ones really communicating with the past) put so much creedance into a TV Show to help boost it's revenue stream. In addition, no social network should have to advertise to the extent Ancestry.com does in order to boost interest. Shouldn't a social network's staying power be based upon its intrinsic value and naturally draw customers to it?
Next, let's look at some fundamentals relatifve to any investment decision. Liabilities for Ancestry.com have increased substantially, officers of the company sold (at will) a significant number of their shares in mid 2011 and have not repurchased, and according to a January 5th report, it is anticipated that revenue growth will decline substantially in 2012 - down to the mid to high teens. In addition, subscriptions are not growing at an increased rate. They are on the decline. And unfortunately, some of the new features around research records that were added in 2011 cannot enable Ancestry.com to maintain it's momentum, in my humble opinion.
Also, please take a look at last year's charts and note the drop in PPS subsequent to release of 1Q 2011 results, followed by spike after 2Q reported. I expected a similar trend here, but more to the downside through 2012.
Additional expenditures, decreased revenue guidance, and a lackluster subscription rate even with the site enhancements amounts to an organization whose income will likely taper off over the next year or so and hold at a lower price.
FYI that I am a short term investor. I may hold my shares through Wednesday but sell prior to reporting if the stock manages to climb a little. I just wouldn't want to risk my investment on so-so news. The market is too fickle right now.
I do hope I am wrong about all of this, but the trend doesn't look good.

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