5 Reasons Not to Worry This Week

It's not a perfect world out there for investors.

I recently went over some of the companies that are expected 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

Adobe Software (Nasdaq: ADBE  ) $0.59 $0.55 Add
Barnes & Noble (NYSE: BKS  ) ($0.93) ($1.04) Add
Red Hat (NYSE: RHT  ) $0.27 $0.24 Add
Oracle (Nasdaq: ORCL  ) $0.78 $0.75 Add
Rite Aid (NYSE: RAD  ) ($0.03) ($0.07) Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Adobe.

The top dog in desktop publishing is the company behind the programs that allow folks to Photoshop snapshots, create Flash videos, and author PDF documents. There may be free alternatives to many of Adobe's premium products, but the specialized software company is still finding ways to grow. Analysts see revenue and earnings growing 7% to 8% when it reports tomorrow.

Barnes & Noble is the last major bookstore chain standing after Borders was ordered to liquidate its stores last year in bankruptcy proceedings. Some retailers may thrive when a rival bows out, but Borders' exit is more symptomatic of the industry's malaise than a golden opportunity for Barnes & Noble. Folks are shifting to digital books and magazines, and that's resulting in a slowdown in store traffic. It remains to be seen when the retailer will be able to turn a profit on its fledgling Nook e-reader business.

The bad news for Barnes & Noble isn't just that Wall Street's bracing for a deficit. The bookseller actually posted an even bigger deficit a year earlier -- hence its appearance on this week's list of improving companies. The rub here is that it's been two years since the chain actually beat Wall Street's profit target.

Red Hat is cashing in on open source. The company has crafted enterprise software solutions and support out of open-source Linux, giving the company a healthy trickle of subscription revenue. It's working. Wall Street's holding out for a profit of $0.27 a share, just ahead of the $0.24 a share it earned a year earlier.

Oracle's approach to enterprise software is even more impressive than what Red Hat has been doing. Larry Ellison's company has been able to make shrewd acquisitions of smaller companies that are typically accretive to the tech bellwether's bottom line.

Oracle has a pretty impressive track record of landing ahead of Wall Street's estimates, so don't be surprised if Ellison wows the market yet again by earning more than the $0.78 a share that the pros are projecting. Before coming up short two quarters ago, Oracle had bested the prognosticators in each of the eight previous reporting periods.

Finally, we have Rite Aid. The drugstore chain has struggled on the bottom line in recent years. In fact, you have to go back nearly four years to find the last time that Rite Aid posted a quarterly profit. The good news here is that Rite Aid's deficits are narrowing. Thursday's report should be the company's fifth consecutive quarter of year-over-year improvement on the bottom line.

Rite Aid may still be years away from returning as a profitable company, but it is taking baby steps in the right direction.

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.

Fool co-founder David Gardner has been behind some of these winning picks, but now there's a new multibagger on his growth newsletter's radar. Read up in a free report that's available right now

The Motley Fool owns shares of Oracle. Motley Fool newsletter services have recommended buying shares of Adobe Systems. Motley Fool newsletter services have also recommended writing puts on Barnes & Noble and creating a diagonal call position in Adobe Systems. 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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