5 Reasons to Worry About 2013

With 2012 winding down, it's time to look ahead to the future.

There's a lot to be worried about, even if the Mayans were wrong about the world ending today.

Europe's still a mess. The fiscal cliff may or may not be averted by the time 2013 rolls around. The New York Jets need a quarterback.

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 year.

Company

Next Year EPS (estimated)

This Year EPS

My

Watchlist

Exelixis (NASDAQ: EXEL  )

($1.00)

($0.88)

Add

SandRidge Energy (NYSE: SD  )

($0.06)

$0.16

Add

ARMOUR Residential REIT (NYSE: ARR  )

$1.05

$1.17

Add

Marvell Technology (NASDAQ: MRVL  )

$0.72

$0.80

Add

Exelon (NYSE: EXC  )

$2.54

$2.85

Add

Source: Thomson Reuters.

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

The cancer-tackling biotech has been a Motley Fool Rule Breakers recommendation since 2005. That's a long time for a fledgling company that has been profitless save for the final half of last year. Well, the losses continue at Exelixis, and the pros see the deficits growing larger next year.

SandRidge turned heads with plans to sell its 225,000 acres in the Permian Basin. The $2.6 billion deal would help the company pay down its debt and bankroll its shift from natural gas to oil. The bottom line, though, is that Wall Street sees the oil and gas junior posting a small loss in 2013, reversing the projected profitability for all of 2013.

ARMOUR is a REIT that invests in hybrid adjustable rate, adjustable rate, and fixed rate residential mortgage-backed securities . The attraction here rests largely on its meaty monthly dividend. At a current rate of $0.08 a share every month we're looking at a beefy 14.4% yield.

That's obviously a juicy payout, but a REIT's dividend is only as good as its ability to grow its funds from operations. Making matters worse, analysts have been inching their 2013 profit targets lower after ARMOUR came up short on the bottom line in its most recent quarter.

Marvell Technology is a developer of storage, communications, and consumer silicon. It's true, I singled Marvell out as one of five stocks less than $10 worth buying just last month. There's potential here. Storage and networking markets -- accounting for 47% and 23% of its business, respectively, at the moment -- are waiting for a global economic recovery. Marvell is also trying to make a bigger push into mobile and wireless connectivity.

The call was a good one. Shares of Marvell have risen 14% since last month's column. The pop has pushed the stock's then-3.2% yield down to 2.8%, but that's still a reasonable reward as investors wait out the market recovery.

However, it certainly isn't comforting to see Wall Street eyeing profitability to stage a retreat next year.

Finally we have Exelon.

Yield chasers were disappointed when the utility announced that it will reorient its business strategy in a way that may kiss its juicy 7% dividend goodbye. Exelon serves 6.6 million utility customers through its BGE, ComEd, and PECO subsidiaries.

Yes, last month Exelon actually raised its guidance for 2012. Analysts still see earnings growth going the wrong way come 2013.

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 you're looking for a winner in 2013 -- a stock that is actually expected to post double-digit percentage improvement on the bottom line -- stick around. The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


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