3 Predictions for the New Week

This Fool sees a limb to go out on. And another. And another.

Mar 23, 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 Rally Software (NYSE:RALY) would post a narrower loss than expected. The provider of cloud-based solutions for managing Agile software development is losing money, but it had posted smaller deficits than analysts were forecasting in its first three quarters as a public company. I was banking on seeing the streak continue. It happened. Rally's adjusted loss of $0.19 a share was considerably better than the $0.26 the pros were predicting. The stock still fell 10% on the week as a result of uninspiring guidance that was provided. However, it did beat on the bottom line. I was right.
  • The Dow Jones Industrial Average (DJINDICES:^DJI) got clobbered a week earlier, so my second call was for the blue-chip index to bounce back. It did. The Dow managed to move 1.4% higher on the week. I was right.
  • My final call was for Tilly's (NYSE:TLYS) to beat Wall Street's income estimates in its latest quarter. The retailer of trendy extreme sports apparel and accessories had beaten analyst targets consistently over the past four quarters, and I was banking on a repeat performance. We saw Tilly's close out the quarter with a profit of $0.19 a share. Analysts had been projecting net income of only $0.18. 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. Sirius XM Radio will move higher on the week
Sirius XM Radio (NASDAQ:SIRI) wrapped up the past week with its lowest close in nearly nine months. Yet the company continues to grow its base of self-pay subscribers, and its free cash flow continues to outpace its top-line growth in this highly scalable model.

Yes, its majority stakeholder, Liberty Media, abandoned plans to absorb the entire company. This is something that retail investors initially applauded, but now there's that lingering fear that John Malone may want to cash out. That's highly doubtful, especially since this is a rare monopoly in Malone's eclectic portfolio of media properties.

There may have been some institutional investors moving on now that the floor is no longer the buyout offer, but the good news is that the move also raises the ceiling.

My first call is for Sirius XM Radio to move higher this week.

2. Nasdaq will beat the Dow this week
I routinely picked the tech-heavy Nasdaq Composite to beat the Dow Jones Industrial Average, and it's usually been a smart wager. That didn't happen this past week, with the Dow's return more than doubling Nasdaq's ascent. That's fine. I had merely predicted that the Dow would rise, and it certainly did exactly that.

I'm going back to my familiar prediction this week. My second call is for the Nasdaq Composite to beat the Dow Jones Industrial Average for the week.

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

lululemon athletica (NASDAQ:LULU) is a Canadian retailer of high-end yoga apparel. It has been expanding quickly in the U.S. as well-to-do yoga buffs, soccer moms, and other women with athletic lifestyles flock to the chain's fashionable active wear.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.72 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

$0.74

$0.75

1%

Q1 2013

$0.30

$0.32

7%

Q2 2013

$0.35

$0.39

11%

Q3 2013

$0.41

$0.45

10%

Source: Thomson Reuters.

Things can change, of course. It's been a brutal past year for Lululemon, as an embarrassing yoga pants recall, poorly received comments by its founder, and the resignation of a popular CEO have weighed on the former market darling. Analysts see sales climbing a mere 6% in Thursday's report, well shy of its consistent double-digit growth spurts in the past. Wall Street also sees a decline in profitability.

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, as you check out three more investing ideas. As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica and owns shares of Liberty Media and Sirius XM Radio. 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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