5 Reasons Not to Worry This Week

It's not a perfect world out there for investors, but things may be starting to get better.

I recently went over some of the companies that are expected to post lower quarterly profits when they report this week. Thankfully, they're the exceptions and not the rule.

Let's go over some publicly traded companies that are expected to stand tall this week by posting year-over-year improvement on the bottom line.

Company

Latest-Quarter EPS (estimated)

Year-Ago Quarter EPS

Smith & Wesson (NASDAQ: SWHC  )

$0.23

$0.07

Compass Diversified (NYSE: CODI  )

$0.28

$0.22

Hovnanian (NYSE: HOV  )

($0.10)

($0.17)

Ciena (NYSE: CIEN  )

($0.13)

($0.17)

Ferrellgas Parnters (NYSE: FGP  )

$0.82

$0.47

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Smith & Wesson. Firearms are big business, and investors saw that firsthand last week when a Smith & Wesson rival posted blowout quarterly results.

Fears of fresh gun control legislation have resulted in a run on firearms, and that's likely to keep results strong for the gun makers in the near term. The long-term ramifications are a different matter entirely, naturally. However, for now analysts see Smith & Wesson's profitability more than tripling when it reports tomorrow.

True to its name, Compass Diversified Holdings watches over an eclectic collection of eight middle-market businesses.

Unlike traditional business development companies that provide financing to dozens of upstarts, Compass actually maintains controlling stakes in its investments.

Compass investments include rigid printed circuit boards producer Advanced Circuits, upholstered furniture maker American Furniture Manufacturing, and personal hydration products specialist CamelBak Products.

We can tie Compass to the firearm craze, since the company also watches over gun safe manufacturer Liberty Safe.

The winning proposition for income chasers here is that Compass commands a healthy yield of 9.1%, having distributed a whopping sum of $8.8752 a share to investors since going public seven years ago.

Hovnanian Enterprises is the latest homebuilder to report quarterly results.

The housing industry has bounced back in a major way over the past year. The S&P/Case-Shiller 20-city composite was released last week for the month of December, and the year-over-year gain of 6.8% makes 2012 the best year for home prices since 2005.

Prices rose in 19 of the 20 cities in the popular homebuilder gauge. New York City was the lone and surprising holdout.

Firming home prices is naturally a great development for developers. Regardless of the glut of existing homes on the market -- and that's another trend that continues to improve in the favor of developers -- if folks are willing to pay more for existing homes they're going to be paying more for new digs, too.

It's not perfect. Residential developers are naturally at the mercy of interest rates. If mortgage rates surge higher there will be less bang for the potential homebuyer's buck. However, things are going well for the leading homebuilders that are coming through with explosive profit growth and healthy backlogs of future orders.

Hovnanian isn't likely to turn a profit. It has only scored two profitable quarters since the real estate bubble popped in late 2006. The key here, though, is that analysts see a dramatically narrower deficit this time around.

Ciena is another company targeted for a narrower quarterly shortfall. The optical networking specialist's expected to post a deficit of $0.13 a share, improving on the prior year's loss of $0.17 a share.

It's not pretty. Ciena has actually posted larger deficits than the market was expecting in three of the past four quarters, but the climate is starting to gradually improve for networking companies.

Finally, we have Ferrellgas Partners. The propane gas distributor is set up as a limited partnership, yielding healthy 9.6% returns for income investors in the form of quarterly distributions.

Revenue is slipping at Ferrellgas, but analysts still see profitability soaring nearly 75% when it reports on Thursday.

Cross those fingers, but know the fundamentals
Investors in these five stocks have a right to be excited. They are all improving their financial situations. They are worthy of the gains that the market rally has bestowed upon them over the past year.

I wouldn't be uncomfortable owning any of these companies. They're doing the right thing, regardless of Mr. Market's mood swings.

The expectations may be high, but these five stocks wouldn't have it any other way.

One more reason not to worry
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


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