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

Home Depot (NYSE: HD  ) $0.97 $0.86 Add
KIT digital (Nasdaq: KITD  ) ($0.37) ($0.49) Add
Cisco (Nasdaq: CSCO  ) $0.46 $0.40 Add
Dollar Tree (Nasdaq: DLTR  ) $0.47 $0.39 Add
Sears Holdings (Nasdaq: SHLD  ) ($0.86) ($1.27) Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Home Depot.

The army of orange aprons is surging again. Home prices are finally stabilizing and actually starting to inch higher in key markets. The end result is that homeowners are no longer apprehensive about taking on home improvement projects.

We saw this trend emerging last month, when the country's leading composite patio-decking maker and hardwood-flooring retailer delivered blowout quarterly results. Analysts see the good news continuing as Home Depot posts healthy bottom-line improvement.

KIT digital helps companies manage their digital video assets. The shares spiked two months ago after the company revealed that it was in talks with potential buyers, but things have settled back down after an acquisition failed to materialize.

Red ink and red flags aren't a pretty combination. Analysts see a narrowing deficit when the company reports tomorrow, but shareholders have been burned before. KIT digital has actually missed Wall Street's profit target in 11 of the past 12 quarters.

Ouch!

Cisco seems to be back. The tech bellwether stumbled during the recession. A glut of competitors putting out cheap networking gear crushed margins, and Cisco's own shortcomings in consumer products only made things worse.

The router maker is in a better place these days. Wall Street's banking on a 15% pop in earnings, with revenue inching nearly 4% higher. It may not be stellar growth, but it does indicate that margins are improving again.

The news gets better for Cisco trend watchers, because you have to go all the way back to early 2008 to find the last time that Cisco didn't earn more than what analysts were targeting. In other words, even the $0.46 a share that the pros are forecasting will probably be too conservative.

True to its name, Dollar Tree runs a chain of dollar stores. The economy may be showing some signs of life, but consumers continue to flock to thrift stores that give shoppers more bang for their buck.

Finally, we have Sears Holdings. The parent company of Sears and Kmart saw its stock more than double during this year's first quarter, as investors flocked to the troubled retailer as an asset play. It's really the only way to approach Sears Holdings, given the dreadful store-level performance at both of its flagship concepts in recent years.

The stock went on to give back some of its first-quarter gains, though investors are still up roughly 60% year to date. The company will more than likely treat investors to another quarterly loss, but at least the deficits are getting smaller.

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 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.

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 Cisco Systems. Motley Fool newsletter services have recommended buying shares of The Home Depot. 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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