3 Predictions for the New Week

This Fool is going to make three market calls that will play out in the coming days.

Jan 26, 2014 at 3:00PM

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

  • I predicted that Netflix (NASDAQ:NFLX) would close higher on the week. This may have seemed like a risky call in retrospect, with the market taking a beating, but Netflix's blowout report found the leading video service soaring. The stock soared 17% 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 brutal week for stocks, but the Nasdaq's 1.7% dive was only half as bad as the Dow's 3.5% plunge. I was right.
  • My final call was for AMD (NASDAQ:AMD) to beat Wall Street's income estimates in its latest quarter. The maker of microprocessors and other chip solutions has been routinely beating Wall Street projections over the past year. I was banking on a repeat performance, and AMD came through by posting a profit of $0.06 a share, sliding past the $0.05 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. Facebook will close higher on the week
Facebook (NASDAQ:FB) has established itself as the social-media bellwether, and it reports quarterly results on Wednesday.

Facebook had a rocky start as an IPO, but the stock was a big winner in 2013 as the market bought into its ability to monetize mobile usage. The company has been able to sweeten some of its quarterly reports in the past by posting impressive metrics on its reach or its monetization efforts, and I'm banking on seeing some of those trends help stocks in general bounce back after a rough last week.

My first call is for Facebook to gain ground 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 Nasdaq's growth stocks to shine. January has historically been a good time for growth stocks, and 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. Cirrus Logic will beat Wall Street's earnings estimates
Some stocks are just flat-out better than others.

Cirrus Logic (NASDAQ:CRUS) may seem to be in a bad spot. Analysts see revenue for the developer of integrated circuits falling 31% when it reports on Tuesday. They see profitability taking an even harder hit. However, Wall Street's been warming up to Cirrus Logic lately, inching their profit targets higher in recent weeks.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.77 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

$1.41

$1.64

16%

Q1 2013

$0.58

$0.59

2%

Q2 2013

$0.49

$0.56

14%

Q3 2013

$0.60

$0.84

40%

Source: Thomson Reuters.

Things can change, of course. This is a scalable business, and when revenue's going the wrong way, it's not a surprise to see profitability tumble even sharper. A welcome sign is that the gap between where analysts are perched and where Cirrus Logic ultimately lands is widening. It has gone from a beat of 2% nine months ago to 14% six months ago to a whopping 40% last time out.

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. In the meantime, keep in mind 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.

Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Facebook and Netflix and owns shares of Cirrus Logic, Facebook, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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