5 Stocks That Laugh at Wall Street

In these heady economic times, Mr. Market seems to enjoy dogpiling on any stock that dares to fall short of analysts' estimates. To defy that trend, we're here to celebrate stocks that didn't merely meet Wall Street's predictions, but laughed in analysts' faces by leaving their miserly forecasts in the dust. The companies below have all soundly trounced earnings estimates by 20% or more in the last quarter:

Source: Yahoo! Finance; NC=not calculable. CNXT is expected to earn $0.11 this quarter compared to a $0.06 loss last year; SCSS is expected to earn $0.05 this quarter compared to a $0.26 loss last year.

Nonetheless, beating estimates isn't enough to make a stock a winner. Analysts are notoriously lousy at forecasting results, and one-time items can sometimes push earnings over the top. Wall Street professionals typically don't include such extraordinary events in their forecasts.

Rather than focusing only on the past, we'll check whether analysts have a bead on future performance. With help from Motley Fool CAPS, we'll see which of the top companies listed above will have the last laugh.

The joke's on them
As fabless semiconductor maker Conexant continues to reshape its operations by focusing on its imaging and audio businesses, it's been able to generate an 18% sequential increase in revenue in those core segments in the latest quarter. The company sold off its broadband access business and concentrated on improving the metrics related to its remaining operations. The imaging and audio lines represent approximately 58% of Conexant's revenue.

The semiconductor industry in general showed surprising strength in the latest quarter, and analysts have been boosting their estimates for growth, while industry bellwether Intel (NASDAQ:INTC) sees a rebound in enterprise PC demand within the next 18 months. The Semiconductor Industry Association now predicts sales will grow by 10.2% in 2010 and by 8.4% in 2011, a brighter scenario than previously forecast thanks to better-than-expected sales in PCs and cell phones. Intel believes Windows 7 may help spur additional demand for a new upgrade cycle.

Conexant's sketchy history of being able to produce both earnings and free cash flow, however, is properly noted by CAPS member MizzouFanVan, who also says it has enough cash on hand to handle its debt level without jeopardizing its potential:

Current ratio is 2.33. It's P/E is 1 right now. Yes, this company is loaded up with debt, but it's been cash flow positive the past two quarters, and actually had some Net Income last quarter. The stock was down to .$26 and has climbed up a good amount. I think this company has room to grow.

The fabless chip specialist has attracted the attention of nearly 250 CAPS members, 92% of whom believe it will outperform the market. It would be fab-ulous, then, if you joined them on Conexant's CAPS page and let us know whether you agree that the semi industry is ready for a rebound.

Chuckles the Clown
Considering that the government is now funding the low-quality mortgages that contributed to the housing industry's implosion, the bounce we've seen in the segment is sure to be short-lived. The FHA, which went from backing just 3% of all mortgages in 2006 to more than 20% today, is still allowing homeowners to purchase homes with as little as 3.5% down. Now that the $8,000 homebuyer tax credit has been extended, nothing-down mortgages are still possible -- even though they're the ones most likely to default.

Foreclosures continue to plague mortgage insurers like MGIC Investment (NYSE:MTG), the country's largest private insurer, which posted wider-than-expected losses as people continued to walk away from their homes. PMI Group, however, surprised the Street with a narrower loss based on its profitable European operations.

It's not surprising that as housing's worst manifestations appear to stabilize, investors would see the industry -- and those underwriting the purchases -- improving. CAPS member investGAguy56 sees PMI as one of those companies that will recover from the earlier ugliness:

Housing will come back as the economy and jobs improve. This stock is beaten down and we can only look toward the future profitability as inevitable. I hesitated on some stocks in early 2009 and won't make that mistake with PMI.

Yukking it up
The market's rally was mostly fueled by low-quality stocks at first, but now it’s dragging most others along based on lower year-over-year comparables. If you think there's some funny business afoot, let us know -- head over to Motley Fool CAPS and sound off.