3 Predictions for the New Week

This Fool sees a limb to go out on, and he's the adventurous type.

Feb 9, 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 Zynga (NASDAQ:ZNGA) would close lower on the week. The social- and casual-gaming giant had soared a week earlier after announcing layoffs and an acquisition, and neither move seemed to warrant applause. As fate would have it, the stock did inch higher throughout the week, closing nearly 3% higher. I was wrong.
  • After more than a year of predicting that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average (DJINDICES:^DJI), I mixed things up. I simply predicted that the Dow would bounce back after plunging 3.5% and 1.1% over the prior two weeks. The Dow popped into positive territory on Friday, closing out the week with a 0.6% gain. I was right.
  • My final call was for Green Mountain Coffee Roasters (NASDAQ:GMCR) to beat Wall Street's income estimates in its latest quarter. The company behind the Keurig single-cup brewer has been routinely beating Wall Street projections over the past year. I was banking on a repeat performance, and Green Mountain came through by posting a profit of $0.96 a share, blowing past the $0.90 the pros were forecasting. I was right.

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. Model N will post a smaller loss than analysts are expecting
Model N (NYSE:MODN) has had a rough rookie year. The provider of revenue management solutions for biotech and technology companies went public 11 months ago at $15.50, and despite the rallying markets in that time, this stock has shed more than a third of its value.

Uninspiring guidance calling for a lot of red ink, shuffling executives, and sales execution challenges have held Model N back. However, once Model N sets the bar low -- and it does -- it finds a way to clear it. The last two times Wall Street was forecasting a quarterly deficit, Model N came through with a much narrower loss one time and an outright profit the other.

Model N reports on Monday after the market close. My first call is for Model N to hold up more favorably than the $0.12-per-share deficit the pros are projecting.

2. The Dow will bounce back this week
The market in general has been weak lately, and the Dow Jones Industrial Average is trading nearly 5% lower for so far in 2014. Last week's modest bounce did little to eat into January's correction.

I'm going to stick with last week's prediction, arguing that the Dow will post a positive return on the week.

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

LeapFrog (NYSE:LF) is the company behind the popular electronic learning toys that started off as simple teaching tools to improve reading skills but have evolved to include full-blown tablets with their own kid-friendly ecosystems of apps.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.14 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

$0.49

$0.60

22%

Q1 2013

($0.07)

($0.04)

43%

Q2 2013

($0.08)

($0.05)

38%

Q3 2013

$0.32

$0.37

16%

Source: Thomson Reuters.

Things can change, of course. LeapFrog had a challenging quarter by most accounts, and that's why analysts see a sharp drop in earnings. Cheaper tablets -- including a few kid-friendly ones -- flooded the market, making it harder for LeapFrog to stand out. However, we can't estimate the time-tested appeal of LeapFrog's brand for parents looking to give their young children a leg up on their eventual classmates.

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, as you check out a few more market calls. Meanwhile, keep in mind that investors tend to be impatient with the market, while the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Rick Munarriz owns shares of Green Mountain Coffee Roasters. The Motley Fool recommends Green Mountain Coffee Roasters and LeapFrog Enterprises and owns shares of LeapFrog Enterprises. 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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