5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

The Olympic Games in London may be showing countries at their athletic best, but many of the world's most significant financial contributors aren't even making it through the qualifying rounds given the uneasy recoveries both here and abroad.

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

Cree (Nasdaq: CREE  ) $0.23 $0.28 Add
Renren (NYSE: RENN  ) ($0.04) $0.00 Add
Sirius XM Radio (Nasdaq: SIRI  ) $0.02 $0.03 Add
James River Coal (Nasdaq: JRCC  ) ($0.79) $0.31 Add
NVIDIA (Nasdaq: NVDA  ) $0.15 $0.25 Add

Source: Thomson Reuters.                         

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

The LED lighting specialist took a hit two months ago after its CFO left to "pursue other opportunities." The good news is that Cree's CEO reaffirmed his company's guidance at the time. The bad news is that this probably means that we're looking at the sixth consecutive quarter of a year-over-year decline in profitability.

Renren operates China's largest social networking website. This would seem to be a booming niche to be leading. The world's most populous nation's economy may be slowing, but it's still growing at a healthier clip than most developed countries.

Renren's top line bears that out. Analysts see the dot-com posting a nearly 39% surge in revenue. However, as scalable a model as social networks seem to be closer to home, Renren is one of the many Internet companies in China that are going the wrong way on the bottom line. Renren may have merely broken even a year ago, but it's eyeing a deficit this time around.

Sirius XM Radio makes the cut in this weekly list, but it should probably come with an asterisk. Nearly half of the $173.3 million profit it scored a year earlier was the result of a one-time pop in investment income from cash it received in completing the acquisition of its Canadian partner.

The satellite radio company is growing steadily, and now that it's buying back debt and likely to begin buying back shares this should be a rare bottom-line dip for Sirius XM.

James River Coal may be in the wrong place at the wrong time. Analyst downgrades and even the bankruptcy filing of a rival have slammed the sector that's been seeing demand for met coal fade in China and thermal coal face utility switching to natural gas closer to home.

In a nutshell, James River Coal was profitable a year ago, but all 13 major analysts tracking the company see a loss when it reports on Thursday.

Finally, we have NVIDIA. The graphics chip pioneer has manage to port its success in PCs to smartphones and tablets, but that may not be enough right now. Wall Street's angling for a sharp drop in net income on flat revenue growth.

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.

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.

Motley Fool newsletter services have recommended buying shares of NVIDIA. Motley Fool newsletter services have recommended writing puts on NVIDIA. 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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  • Report this Comment On August 03, 2012, at 9:55 AM, 67vair wrote:

    You are the only writer I've seen that has Sirius going the "wrong way" on earnings. Better double check that one.

  • Report this Comment On August 03, 2012, at 12:22 PM, jwtrotter wrote:

    Please, your comment about Nvidia is laughable. Even if this quarter is 'flat', they are in the driver's seat with more wins than their competitors in the most prominent non-iPad products so the outlook would more than make-up for any flat quarter if it is flat . . . grasping at straws.

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