Is this what a correction feels like?
After a few robust weeks, equities are beginning to settle down.
The S&P 500 has closed lower in eight of the past dozen trading days, and yesterday saw the tech-heavy Nasdaq -- the leading major market metric during last quarter's huge run -- post its biggest single-day drop of the quarter.
This comes at a time when the economy is seemingly humming along. Company earnings are improving, and new jobs are being created.
However, it's not as if corporate America is playing along completely. There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (estimated)
Year-Ago Quarter EPS
|Alcoa (NYSE: AA )||($0.04)||$0.28||Add|
|Titan Machinery (Nasdaq: TITN )||$0.52||$0.57||Add|
|Layne Christensen (Nasdaq: LAYN )||($3.77)||$0.45||Add|
|LDK Solar (NYSE: LDK )||($0.72)||$1.09||Add|
|JPMorgan Chase (NYSE: JPM )||$1.15||$1.28||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Alcoa.
As the world's leading producer of primary and fabricated aluminum -- and the largest miner of bauxite and refiner of alumina -- Alcoa's an industrial juggernaut. With 61,000 employees across 31 different countries, its reach is broader than the "Aluminum Company of America" moniker that's been shortened to Alcoa.
Unfortunately, all of its size and the global demand for sustainable aluminum won't be enough to keep Alcoa from reversing a year-ago profit when it reports on Tuesday, according to analysts.
Titan Machinery runs a network of full-service agricultural and construction equipment stores. Titan watches over 96 dealerships across the United States and another 10 locations in Romania and Bulgaria. Investors can expect the dealership count to continue growing. This is a highly fragmented niche, and Titan is making the most of its status as a public company in gobbling up smaller players.
Acquisitions and organic growth should help propel top-line growth of nearly 18% in its latest quarter, but pressure on margins will likely send profitability going the other way.
Layne Christensen is a provider of industrial services that include drilling, water treatment, and construction services. This may seem like a steady business, but the company warned last month that it will be taking a huge noncash impairment hit, resulting in a loss of $70 million to $80 million for the quarter.
The accounting hit explains the sharp deficit that Wall Street's expecting. However, even if we were to back out the effect of the impairment charge, Layne Christensen is only near breakeven results for the period.
If you've checked out any of the solar energy companies that have been reporting this season you know that this is a sector getting hammered. It's not just LDK Solar's bottom line that's going the wrong way. Analysts see revenue falling by more than half. There will definitely come a time for solar to shine, but it will have to wait until the European crisis truly sets.
Finally, there's JPMorgan. The financial services giant has meaty interests in traditional banking, investment banking, and credit cards. The company has been one of the better performers in the money business, but the pros still see it taking a small step back on the bottom line when it reports a week from today.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
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