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 Novavax (NASDAQ: NVAX  ) would post a wider loss than expected. The vaccine developer is growing, but it's been posting larger deficits than analysts have been forecasting for several quarters in a row. Novavax's loss of $0.07 a share was slightly better than the $0.08 analysts were forecasting. I was wrong.
  • The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been strong lately, but my second prediction still called for the tech-heavy Nasdaq Composite to outpace the Dow. It was a bad week for the market, and the Dow's 2.4% dip was worse than the Nasdaq's 2% decline. I was right.
  • My final call was for magicJack VocalTec (NASDAQ: CALL  ) to beat Wall Street's income estimates in its latest quarter. The provider of Web-based communication services has consistently landed ahead of Wall Street's profit targets over the previous year, and I was banking on a repeat performance. We saw magicJack close out the quarter with a profit of $2.50 a share. Analysts had been projecting per-share net income of only $0.41. I was right.

Two out of three? That's not bad, but I can still do better.

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. Rally Software will post a smaller loss than expected
Rally Software (NYSE: RALY  ) hasn't exactly been a scorching IPO since going public at $14 less than a year ago, but at least it isn't a busted IPO. The provider of cloud-based solutions for managing Agile software development is trading in the high teens, and that's not a bad thing.

Rally, however, has yet to turn a profit. It is at least growing its top line at a healthy double-digit rate. The company reports on Thursday, and the pros are rallying around another quarter of red ink. However, Rally Software has managed to post a narrower deficit than the market is expecting in its first three quarters as a public company. That's a streak worth respecting.

My first call is for Rally Software to post a narrower quarterly loss than Wall Street's projecting this week.

2. The Dow will move higher this week
I routinely picked the tech-heavy Nasdaq Composite to beat the Dow Jones Industrial Average, but this time I'm betting on the Dow to bounce back after a brutal week. This isn't an easy pick to make, given the market's bearish tone after several upbeat weeks that came before. Stocks remain fairly overvalued, according to many market watchers. However, there are still too many reasons to remain bullish for the long haul, and many should view this past week's dip as a buying opportunity.

My second call is for the Dow Jones Industrial Average to check in with a positive close on the week.

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

Tilly's (NYSE: TLYS  ) is a trendy retailer of West Coast-inspired clothing, footwear, and accessories. It has been expanding quickly since going public two years ago, and it now has 197 stores selling everything from swimsuits to skate gear.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.18 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

$0.30

$0.32

7%

Q1 2013

$0.07

$0.08

14%

Q2 2013

$0.13

$0.15

15%

Q3 2013

$0.21

$0.22

5%

Source: Thomson Reuters.

Things can change, of course. The beats haven't been by much. We're talking a penny or two per share. Wall Street's also bracing for a sharp drop in profitability on flat sales for the holiday quarter. As we've seen from other retailers, it wasn't a very lucrative shopping season for a lot of mall chains this time aorund.

It's still 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. Meanwhile, although it's no secret that investors tend to be impatient with the market, investors would do well to remember that 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.


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