5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

The Commerce Department may have revised the economy's third-quarter growth higher -- up to an annualized rate of 2.7% from the initial 2% forecast -- but is it sustainable?

If housing and defense are holding up the economy, what happens to the residential real estate industry if the mortgage interest deduction goes away or borrowing costs inch higher?

The news isn't just iffy on the macro level. There are also 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

LDK Solar (NASDAQOTH: LDKSY  )

($1.24)

($0.87)

Add

AeroVironment (NASDAQ: AVAV  )

$0.23

$0.30

Add

Vail Resorts (NYSE: MTN  )

($1.59)

($1.54)

Add

Finisar (NASDAQ: FNSR  )

$0.14

$0.23

Add

H&R Block (NYSE: HRB  )

($0.40)

($0.38)

Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with LDK Solar.

Anyone paying attention to the solar energy sector knows that this isn't the first time that a company in this once-booming niche is in a state of retreat. A glut of players is creating cutthroat pricing at a time when demand is teetering as many global economies prioritize fiscal stability before bankrolling clean-energy initiatives.

Yes, LDK shares have stormed back since breaking below a buck last month. The Chinese maker of photovoltaic products has seen its stock soar 66% since bottoming out a few weeks ago. The fundamentals haven't necessarily bounced back. Analysts see a widening deficit on a brutal 48% plunge in revenue.

I know Annie sings about the sun coming out tomorrow, but solar energy stocks may need more than just a day to truly bounce back.

AeroVironment makes unmanned aircraft vehicles. Yes, these are the cool military contraptions that look like slightly larger versions of remote-controlled flying toys, but they're clearly not playthings. They get deployed on recon missions, aid in surveillance, and even help scout out storms.

The bullish thesis for AeroVironment is that it won't be as susceptible to cutbacks in military spending as traditional defense companies. The product makes the country smarter without putting human lives in harm's way. Well, that argument appears to be flawed this time. Wall Street's looking for a slight dip in revenue and a bigger hit on the bottom line.

Vail Resorts operates several ski resorts in Colorado. Yes, this is a seasonal business. Yes, we're heading into the peak winter season. Vail Resorts posts losses when there's no snow on the slopes, and investors are cool with that. They know that Vail Resorts will more than make that up when the snowbirds come to ski and snowboard. However, at a time of the year when cost controls are paramount, why is Vail Resorts projected to lose more money than it lost a year earlier during the off-season?

Finisar was one of the market's biggest winners when stocks began rallying off their recessionary lows in 2008. The optical networking specialist saw its stock nearly triple in 2009 before more than tripling in 2010. Like a Vail Resorts visitor getting off the ski lift, though, it's been mostly downhill from here.

Finisar and its peers have struggled lately. The pros are forecasting Finisar's revenue and profitability slipping 4% and 39%, respectively, when the company reports on Wednesday.

Finally, we have H&R Block.

Like Vail Resorts, the accounting giant is clearly a seasonal business. H&R Block's snowy slopes come in the weeks heading into April as folks rush to file their annual tax returns. It's mud season after that!

However, one would expect the company, just like Vail Resorts, to have a better handle of its finances to keep losses in check during the seasonal lulls. If anyone else should know how to keep these numbers in line, it would seem to be the country's leading tax preparer.

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.


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