5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

The S&P 500 has fallen for four consecutive trading days as we kick off the final Friday of 2012.

Sure, home prices are firming up, but will that hold if mortgage prices start to inch higher? Recent gains in employment can quickly be squandered if tax hikes kick in on the wealthiest business owners, who may choose to scale back as a response.

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

A. Schulman (NASDAQ: SHLM  )

$0.49

$0.52

Add

AngioDynamics (NASDAQ: ANGO  )

$0.09

$0.13

Add

Finish Line (NASDAQ: FINL  )

$0.10

$0.11

Add

Mosaic (NYSE: MOS  )

$0.94

$1.40

Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with A. Schulman.

The maker of specialty plastics is expected to post a modest dip in profitability when it reports on Thursday. It's not just a matter of contracting margins. Wall Street's also bracing for a slight decline in revenue here, too.

Plastic compounds and resin may not sound like a hot growth market, but keep in mind that A. Schulman has come through with annual hikes of its generous quarterly dividends in each of the past three years. Its last increase came in October. If A. Schulman's profitability continues to shrink, there will come a time when a bountiful payout won't be sustainable.

AngioDynamics is a maker of minimally invasive medical devices used by doctors and surgeons for vascular access, surgery, peripheral vascular disease, and oncology. At a time when the net is widening for health care coverage, one would think that AngioDynamics should be rolling in dough. Well, it's not. The good news here is that it has managed to land ahead of Wall Street's profit targets in each of the past four quarters. You actually have to go all the way back to the summer of 2009 to find the last time that the company has fallen short on the bottom line.

Finish Line runs a popular chain of stores selling athletic footwear. Wall Street actually sees a 5% uptick in net sales for the mall-based retailer, but it's apparently not going to translate to the bottom line. Finish Line has managed to top expectations in its past two quarters, so it has a fair chance of meeting if not exceeding last year's quarterly profit. We'll see how that plays out when the chain reports on Friday morning.

Mosaic is a major producer of concentrated phosphate and potash crop nutrients. If you snoozed through chemistry class, this basically means that Mosaic makes the fertilizer that helps plants grow. We live in agricultural times, especially with emerging nations that are growing faster than the balance of the globe. There is a growing appetite for crop nutrients in many of these countries, and they can pay for it.

However, you wouldn't know that from Wall Street's call for profitability to fall by more than a third when Mosaic reports on Friday.

This will also probably be the last time that Mosaic reports so early in the calendar year. After its fiscal year ends in May, Mosaic is switching to the more popular route of lining up its fiscal year with the calendar year. In other words, Mosaic's next fiscal year will end in December.

If you've been counting, that's just four reasons to worry about next week. The earnings calendar slows down this time of year.

But I don't have to look hard to find a fifth and final reason to worry. Two words: fiscal cliff. Yes, you're tired of hearing it, but the year does end on Monday night.

This is a fluid situation. President Obama is set to meet with lawmakers as early as this afternoon to see if a deal can be struck to avert the across-the-board tax hikes and spending cuts that will kick in if the parties can't find a way to come together in the middle.

The market's going to react swiftly one way or another early next week based on how talks play out.

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.

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