Do you remember when the sky was falling? It was early March, and the worrywarts were wondering whether we were about to break below Dow 5000 -- or worse.

It certainly doesn't feel that way anymore. The market's been rallying since mid-March, and every week finds encouraging signs on the economic-recovery horizon. Buoyant consumer confidence, peppy share prices, and even the surprising 17% surge in housing starts for the month of May are all signs that Mr. Market has been in a good mood lately.

Now where did I pack that pin to pop this balloon?

See, a lot of stock gains are making implied promises that their fundamentals are likely to undermine. Many of the companies stepping up to the stage are posting lower earnings than they did a year ago.

Let's go over a few of the blue chips and seemingly recession-proof companies for which analysts see the arrows pointing down on the bottom line next week. Some of the names may surprise you.


Latest Quarter's EPS (Estimated)

Year-Ago Quarter's EPS

Walgreen (NYSE:WAG)



AeroVironment (NASDAQ:AVAV)






CKE Restaurants (NYSE:CKR)






Red Hat (NYSE:RHT)



ConAgra (NYSE:CAG)



Source: Yahoo! Finance. EPS = earnings per share.

Clearing the table
There will probably be many more companies posting lower earnings next week, but these are a few of the names that really jump out at me.

Walgreen should be the poster child for recession-proof stocks. A weak economy doesn't mean fewer trips to the corner drugstore. If anything, the need for medicated tranquility during stressful economic times probably increases.

AeroVironment lives and dies on defense spending. It makes unmanned aerial vehicles, powerful surveillance tools that keep military personnel out of harm's way. The company is likely to generate brisk sales even if troop numbers are scaled back, and it has an impressive backlog of orders. But do keep in mind that the current administration has generated an environment that's angling for spending cuts in this sector.

At Oracle, Larry Ellison is a serial acquirer. He strikes deals that are typically accretive, and he usually finds a way to make them work. But enterprise software doesn't seem like a hotbed of growth when the economy is in the dumps.

CKE is the parent of Carl's Jr. and Hardee's. I thought penny-pinching diners were trading down to fast-food burger joints.

Nike has posted year-over-year bottom-line gains in nine of the past 10 quarters, including its two most recent quarterly reports. But it may be seen as a luxury brand, given its premium footwear.

Red Hat is a star performer in the Linux landscape. I had figured that open-source computing would be doing a lot better when computer users -- and computer-stacked corporations -- try to save a little money on the IT end of things.

And finally, ConAgra is a food giant. Edibles are seen as a defensive industry, but I guess too many people are turning to cheaper store brands instead of the slightly more expensive brand names, such as ConAgra's Healthy Choice low-fat frozen entrees and Hebrew National hot dogs.

Why the long face, short-seller?
If you're handing out clothespins to pinch noses, I want one. These quarterly reports aren't going to smell pretty. The upside for investors is that Wall Street isn't holding out hope for any miracles. It fully expects these seven companies to post profit declines. The real surprise here would be healthy -- even Healthy Choice -- reports.

And they could still be forthcoming, especially given that many of these companies are just a few pennies short of their year-ago profits. It wouldn't take much of a positive surprise for Nike or Oracle to post year-over-year improvement next week, for example. Nike has topped Wall Street expectations in seven consecutive quarters, so the trend would suggest that it's unlikely to disappoint as badly as the market fears next week.

The more I think about it, the less worried I become.

Some other reads to get you through the weekend:

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Longtime Fool contributor Rick Munarriz wonders whether his contrarian heart will ever be happy. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.