4 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Jobless claims may have dipped for the first time this week since April, but that's just one bright spot.

Spain's credit rating was talked down and the rest of the global economy is still teetering.

It's not just iffy news at the macro level. 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.

Company

Latest-Quarter EPS (Estimated)

Year-Ago Quarter EPS

My Watchlist

Majesco Entertainment (Nasdaq: COOL  ) $0.08 $0.13 Add
Finisar (Nasdaq: FNSR  ) $0.21 $0.33 Add
Korn/Ferry (NYSE: KFY  ) $0.27 $0.39 Add
Smithfield Foods (NYSE: SFD  ) $0.54 $0.85 Add

Source: Thomson Reuters.                         

Clearing the table
Let's start at the top with Majesco Entertainment.

The video game developer has had some surprising hits over the years. Who would imagine that the culinary Cooking Mama would take off as a handheld gaming sensation? In a sea of workout titles, it was hard to picture Majesco coming on strong with its Zumba Fitness titles, much less selling a whopping 7 million copies of the fitness franchise. However, gravity has caught up to the big boys of gaming. Why should Majesco be spared?

The good news for Majesco is that Wall Street does see it growing its revenue and earnings by 12% and 9% respectively for all of fiscal 2012. It's just not likely to go in that direction this particular quarter.

During the E3 powwow this week, the company showed off its upcoming NBA Baller Beats game. A rhythm game using a real basketball and Xbox's motion-based Kinect controller? Color me intrigued. The game hits stores in September.

Finisar was one of 2010's hottest stocks, but that was before optical networking took a tumble last year. This will likely be Finisar's fourth consecutive quarter of earning less than it did a year earlier.

Investors have been paying the price for Finisar's shortfalls. The same stock that peaked at $46 early last year has gone on to shed more than two-thirds of that value.

Korn/Ferry International is a staffing specialist. The problem here isn't just that analysts see the company earning less than it did a year earlier. Korn/Ferry has actually come up short against Wall Street's bottom-line targets in each of the two previous quarters. Is the third time the charm?

Finally, we have Smithfield Farms on the block. Analysts may see the world's largest pork processor and hog producer posting a sharp decline in profitability when it reports on Thursday morning, but optimists shouldn't give up hope. Smithfield has landed ahead of Wall Street's profit targets in each of the past six quarters.

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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The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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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