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 Krispy Kreme Doughnuts (NYSE: KKD  ) would move higher on the week. The maker of decadent doughnut treats was reporting earnings on Thursday, and after beating Wall Street profit forecasts by 50% or better in the previous three quarters, the trend suggested another winning report. That didn't happen. Krispy Kreme fell short on the bottom line, and the stock wound up losing 1% of its value on the week. I was wrong.
  • I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average. (DJINDICES: ^DJI  ) . This has been a tricky call lately, so how did it play out this time? The Dow's 10-day winning streak came to a close, but the Nasdaq has been far more volatile. After a strong showing a week earlier, the Nasdaq closed just 0.1% higher. The Dow, on the other hand, managed to clock in with a 0.8% gain on the week. I was wrong.
  • My final call was for Ebix (NASDAQ: EBIX  ) to beat Wall Street's quarterly profit target. The provider of enterprise software solutions for the insurance industry has been a serial outperformer, blowing through Wall Street's bottom-line forecasts with ease over the past year. Analysts were looking for a profit of $0.45 a share during the quarter, and it came through with net income of $0.48 a share. I was right.

One out of three? I know that 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.Baidu will bounce back this week
 While the Dow rallied through 10 straight days of fresh highs, some stocks went the other way. Baidu (NASDAQ: BIDU  ) , for one, was a major disappointment, hitting a new two-year low on Friday.

China's leading search engine has had its challenges lately, but it should never be trading this low. Baidu is now selling for less than 13 times next year's projected profitability, even though it's still growing at a considerably headier pace than that.

On Thursday, I fleshed out my argument for a bottoming out at Baidu. Some Chinese stocks deserve to be marked down, but not this one. My first call is for Baidu to close the week higher.

2.The Nasdaq Composite will beat the Dow this week
Tech has been a big winner in recent years, so betting on tech over stodgy blue chips has been a good bet for me more often than not. I'm going to stick with this pick. Most of the names in the composite are just too cheap at this point. 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.

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

When it comes to upscale clothing boutiques, Francesca's Holdings (NASDAQ: FRAN  ) has been a strong performer. Francesca's runs a fast-growing chain of namesake stores. It has a clever inventory strategy, carrying a broad range of clothing and accessories for women but stocking a limited number of each item. This "deep but shallow" approach makes it compelling for shoppers to act on something they like. It probably won't be around if they wait to buy it later. This approach also leads to repeat visits, given the fast-changing nature of garb for sale.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.30 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

Q4 2011

$0.17

$0.20

18%

Q1 2012

$0.18

$0.20

11%

Q2 2012

$0.24

$0.28

17%

Q3 2012

$0.22

$0.24

9%

Source: Thomson Reuters.

Things can change, of course. Fashion is fickle, and shoppers can tire of even the most dynamic of retail concepts quickly. There are also the pervasive fears that the end of the payroll-tax stimulus this year can curtail consumer spending. Clothing could be a casualty.

However, it's hard to argue against Francesca's when it's rolling. Everything seems to be falling into place for another market-thumping quarter on the bottom line.

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

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Read/Post Comments (3) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2013, at 4:56 PM, LeeNysted wrote:

    ...I think the "risk trade" might get into trouble this next week, after the Euro Zone nightmare saga takes center stage...it appears that a government stealing bank deposits from insured accounts does not sit well with "the folks."

  • Report this Comment On March 20, 2013, at 10:15 AM, Yaddith wrote:

    In part on your recommendation, and in part because FRAN went down yesterday for no good reason, I bought it before the close, and made a quick 10%. Thanks! I don't consider FRAN a good long term trade, because the shorts are always knocking it down, but because of its volatility, it is good day trade.

    I also added to my position in BIDU yesterday, because it hit a new 52 week low. I see only upside here.

  • Report this Comment On March 20, 2013, at 11:42 AM, TMFBreakerRick wrote:

    Yaddith, thanks for the kind words. It was a very strong report out of FRAN, and I'm encouraged by today's pop.

    Now let's see how the rest of the week plays out for my two other predictions.

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