5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Consumer confidence hit a nine-month low in August.

Really? What happened to all of the jobs being added lately in the private sector or the gradual rebound in the housing market? It seems as if consumers aren't convinced that this is sustainable, and that's bad news for the economy.

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

Finisar (Nasdaq: FNSR  ) $0.14 $0.21 Add
AeroVironment (Nasdaq: AVAV  ) ($0.02) $0.01 Add
Mitcham Industries (Nasdaq: MIND  ) $0.05 $0.11 Add
Accuray (Nasdaq: ARAY  ) ($0.12) ($0.10) Add
Quiksilver (NYSE: ZQK  ) $0.05 $0.06 Add

Source: Thomson Reuters.                         

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

The optical networking specialist was a rock star just a couple of years ago. Finisar shares nearly tripled in 2009 before going on to more than triple in 2010.

It hasn't been as awesome after that. The stock has shed more than half of its value since the end of 2010.

It's been pretty brutal for Finisar and most of its peers in optical networking. Analysts see essentially flat revenue growth out of Finisar when it reports on Tuesday after the holiday weekend, but those same pros see profitability declining by a third.

Better times are ahead for optical networking, but we just don't know when that will be.

AeroVironment makes unmanned aircraft vehicles. They may look like oversized paper airplanes, but these aren't toys. These high-tech flying machines are life savers. Whether it's the more common military application of sending out the vehicles on reconnaissance missions or helping park rangers monitor forest fires or locals monitor volcanic plumes, AeroVironment makes a vital product.

Unfortunately for investors, Wall Street sees a small deficit reversing an even smaller profit a year earlier.

Mitcham is a supplier of seismic equipment. When it reports on Wednesday afternoon -- and hosts its conference call come Thursday morning -- investors won't need geophysical monitoring equipment to know that Mitcham is losing ground. Wall Street figures that the company earned roughly half as much as it did a year ago.

Accuray isn't supposed to be making money. The company behind the high-tech CyberKnife and TomoTherapy has only sold a little more than 635 of its systems to hospitals. However, the radiosurgery specialist still should be closing in on profitability as its user base get larger. That isn't happening.

Finally, we have Quiksilver.

The retailer of apparel and gear with an extreme sports bent is expected to post a profit of just $0.05 a share, but it could be worse. The chain has missed Wall Street's profit target in each of the past four 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 translate 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 AeroVironment. 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 31, 2012, at 12:18 PM, PauvrePapillon wrote:

    Correction: Accuray is not only improving its margins and closing in on restoring profitability, it's last two reported quarters were cash flow positive.

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