3 Predictions for the New Week

I went out on a limb last week, and now it's time to see how that decision played out.

  • I predicted that Pandora (NYSE: P  ) would close lower on the week. The leading music streaming service had been hitting new highs ahead of a report that had to be spectacular to justify the recent gains. It wasn't. The stock was moving higher ahead of Thursday afternoon's report but gave it all back and then some, after the poorly received report. Pandora shares plunged 13% on Friday, taking it 7% lower for the entire week. I was right.
  • 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? Well, this was a good week for tech stocks. The Nasdaq moved 1.5% higher, bucking the Dow, which managed to close 0.5% lower. I was right.
  • My final call was for Hewlett-Packard (NYSE: HPQ  ) to beat Wall Street's income estimates in its latest quarter. The PC market has been horrendous lately, but HP's business services and other tech specialties have bailed it out in the past. It had also been posting blowout quarterly results over the past year. I was banking on seeing the trend continue. Analysts were looking for a profit of $0.87 a share during the quarter, and it came through with net income of $0.86. The stock fell on the report. I was wrong.

Two out of three? 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. Microsoft will close lower on the week
Steve Ballmer's pending departure at Microsoft (NASDAQ: MSFT  ) intrigued and delighted the market on Friday. The stock soared 7% in anticipation of a brighter future at the software giant.

Really?

I think reality will kick in during the week ahead. There's no CEO out there who can restore things to the way they were before Android and, to a lesser extent, iOS made Windows less relevant. The game has changed permanently.

The type of buzz we saw on Friday is usually accompanied by CEO changes at companies that are buyout bait, and that's certainly not the case here. A stock pop of this sort likewise happens at companies where a new CEO can institute an easy fix, and that's certainly not happening here, as Microsoft embarks on the long transformation into a devices and services company that may never be as lucrative as it was when the world has no choice but to embrace Windows as its premium operating system of choice.

My first call is for Microsoft to close lower on the week.

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, and tech should be what carries us through the economic recovery. Yes, earnings reports have been rough in some places this season, but the long-term outlook is still quite favorable.

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

OmniVision Technologies (NASDAQ: OVTI  ) is the leading maker of image sensors used in cameras. This seemed to be a fading market when digital cameras and laptops began to diminish in popularity, but the mad scramble by smartphone and tablet makers to make sure their devices take slick pictures put OmniVision's sensors in high demand.

Another thing the company does is make analysts look like perpetual underachievers. If analysts say Omnivision posted a profit of $0.43 a share in its latest quarter, I'll argue that it held up better than that. 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 Est.

EPS

Surprise

Q1 2013

$0.22

$0.21

(5%)

Q2 2013

$0.31

$0.33

7%

Q3 2013

$0.41

$0.56

37%

Q4 2013

$0.21

$0.31

48%

Source: Thomson Reuters.

Things can change, of course. Wall Street isn't being conservative anymore, and it sees profitability more than doubling on a healthy 46% spike in revenue this quarter. It's also possible that another price war can break out, sending margins -- and naturally earnings -- lower.

However, it's hard to argue against the trend. 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.

3 more predictions
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!


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  • Report this Comment On August 25, 2013, at 7:16 PM, techy46 wrote:

    #1 is pretty easy since MS should not have gone up 7% just because Ballmer's retiring.

  • Report this Comment On August 26, 2013, at 4:58 AM, faust445 wrote:

    relating to ms you are just writing about the way things are now. but in tech things are always changing otherwise good/aapl would not be where they are. and things will change again and probably sooner than you think. and who cares about a one week move on a stock...heck, investors have been waiting on this company for 13 years for the stock to do anything!

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