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 move lower on the week. The leading streaming service was trading near fresh highs earlier in the month after positing positive metrics for November, but with rival Spotify setting up a press event to introduce some new growth initiatives, it seemed best to steer clear of the market darling. The stock slipped 4.4% on the 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 bad trading week for stocks. The Nasdaq moved 1.5% lower, beating out the Dow and its 1.7% slide. I was right.
  • My final call was for lululemon athletica (NASDAQ: LULU  ) to beat Wall Street's income estimates in its latest quarter. The retailer of high-end yoga and fitness apparel for women has been routinely beating Wall Street projections over the past year. I was banking on a repeat performance. The stock tumbled on lululemon's uninspiring holiday outlook, but the look back didn't disappoint. It posted a profit of $0.45 a share, blowing past the $0.41 the pros were forecasting. I was right.

Three out of three? Awesome!

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. Darden Restaurants will move lower on the week
Darden Restaurants (NYSE: DRI  ) is the parent company of Olive Garden and Red Lobster. The casual-dining bellwether has been stumbling lately. Comps fell sharply at both concepts in its latest quarter, and Darden has missed Wall Street net income projections in back-to-back quarters.

Darden's yield of 4.1% has kept investors patient, and that's a big reason the stock is trading closer to its 52-week high than its low despite the iffy fundamentals.

The meandering restaurateur reports quarterly results on Thursday. It's not likely to be pretty, with analysts holding out for a decline in profitability. Given the unfavorable momentum in recent reports, the smart money has to be on another disappointment here.

My first call is for Darden's stock to move lower this 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, even if it's been a bad bet a few times lately. This is the time for the Nasdaq's growth stocks to shine. 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. Lennar will beat Wall Street's earnings estimates
Some stocks are just flat-out better than others.

Lennar (NYSE: LEN  ) is a leading homebuilder. It's been a natural beneficiary of the rebound in the housing boom, in which buyers are willing to pay more for newly constructed properties.

Another thing it does is make analysts look like perpetual underachievers. If analysts say that the company posted a profit of $0.62 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 Estimate

EPS

Surprise

Q4 2012

$0.44

$0.56

27%

Q1 2013

$0.15

$0.26

73%

Q2 2013

$0.33

$0.61

85%

Q3 2013

$0.45

$0.54

20%

Source: Thomson Reuters.

Things can change, of course. We already saw one leading homebuilder this past week suffer a sharp decline in orders. Higher home prices and slowly rising mortgage rates may be scaring away potential buyers.

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.

One more prediction -- but this one is for the new year
Well, there are three predictions right there. Let's see how I fare this week. In the meantime, remember that there's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


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