3 Predictions for Next Week

I went out on a limb last week, and now it's time to see how that decision played out.

  • I predicted that J.C. Penney (NYSE: JCP  ) would post a larger deficit than the $0.05 a share that Wall Street was expecting. It's been a brutal year for the department-store chain even as CEO Ron Johnson has initiated a makeover of the struggling retailer. Everyone knew the report would be bad, but even bears were left scratching their heads. After a brutal 26% plunge in comps, J.C. Penney posted an adjusted loss of $0.93 a share. I was right.
  • I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average. (INDEX: ^DJI  ) . The market was slammed with its largest single-day drop in nearly a year on Wednesday, and it was too much for the rest of the week to overcome. The tech-heavy Nasdaq closed 2.6% lower. The Dow, on the other hand, shed 2.1% of its value for the week. I was wrong.
  • My final call was for SodaStream (Nasdaq: SODA  ) to beat Wall Street's profit target. The company behind the popular home beverage maker has been beating the market consistently since going public two years ago, and naysayers calling SodaStream a fad aren't in tune with the fizzed-up fundamentals. It was a good call. SodaStream's adjusted profit of $0.87 a share was well ahead of the $0.72 analysts were expecting. I was right.

Two out of three? I can do better than that!

Let me once again whip out my trusty, dusty, and occasionally accurate crystal ball to make three calls that may play out over the next few trading days.

1.GameStop will revise its comps lower for this fiscal year
GameStop (NYSE: GME  ) is dying. It just doesn't know it. The video-game retailer has been slashing its same-store sales guidance all year as gamers continue to wean themselves off traditional disc-based diversions. Even GameStop's once-thriving resale business suffered a double-digit percentage blow three months ago.

As GameStop gears up to report its latest quarterly results on Thursday, it's easy to be pessimistic. GameStop's cash-rich balance sheet has afforded it the luxury of aggressive share buybacks to limit the pain of pinched profitability on a per-share basis. However, it can't hide from the actual store traffic metrics that it has hosed down a couple of times already this year.

There's no reason to expect that to change, and looking out to the potent holiday quarter, we find that October was a disaster.

I won't go out on a limb to predict an earnings shortfall, because GameStop may very well buy its way out of that reality. However, the fading state of physical retail of games -- and the reality that next Sunday's Wii U debut won't be a savior -- is too strong for GameStop to deny.

My first prediction is for GameStop to lower its comparable-store-sales guidance.

2.The Nasdaq Composite will beat the Dow this week
Betting on tech over stodgy blue chips was a steady winning bet for me earlier this year. This has been a losing bet lately, but I still think technology is the best sector to be invested in these days.

I'm going to stick with this pick. Most of the names in the composite are just too cheap at this point, and they will be reporting quarterly results in the coming days.

The market is ripe for the tech-stacked secondary stocks to continue to outpace the 30 megacaps that make up the Dow Jones Industrial Average as we kick off the fourth quarter.

3.PetSmart will beat Wall Street's earnings estimates
Some stocks are just flat-out better than others.

PetSmart (Nasdaq: PETM  ) is a leading retailer of pet supplies and a provider of basic pet-care services. This has been a seemingly recession-resistant business. Even in lean times, folks aren't going to stop taking care of their dogs, cats, and other pets.

Another thing it does is make analysts look like perpetual underachievers. If analysts say that the company earned $0.63 a share in its latest quarter, I'll whip out a "greater than" sign. History's on my side!

One of my best tricks to beating the market is finding stocks that perpetually land ahead of the prognosticators. Let's go over the past year of earnings reports.

Quarter

EPS Estimate

EPS

Surprise

Q3 2011

$0.48

$0.50

4%

Q4 2011

$0.90

$0.91

1%

Q1 2012

$0.73

$0.85

16%

Q2 2012

$0.66

$0.71

8%

Source: Thomson Reuters.

Things can change, of course, especially if pet owners flock to cheaper online options for their basic necessities. Discount department stores and even dollar stores stock some rudimentary pet-care products. However, none of those things appear to be materializing now. Everything seems to be falling into place for another strong quarter on the bottom line.

Three for the road
Well, there are three predictions right there. Let's see how I fare this week.

SodaStream's carbonation technology sounds simple, right? Well, this razor-and-blade company offers an intriguing opportunity for growth that may be harder to duplicate than you might think. Our premium report on SodaStream explains the opportunities as well as the risks in the company. The report comes with a year's worth of updates, so just click here to get started.


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