Yes, Virginia. There is a Santa Claus rally.
Wednesday's global stock gains may have been a welcome treat, but let's not assume that December will bring more of the same. Things still aren't pretty out there. Just wait until you hear what corporate America has to say next week.
There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (estimated)
Year-Ago Quarter EPS
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Quanex Building Products. The maker of value-added engineered materials for the building products market isn't supposed to be thriving these days. Who needs aluminum sheets in this soft economy? However, Quanex isn't doing itself any favors, having missed Wall Street's profit targets in two of the past three quarters.
Avanir and Peregrine are pharmaceuticals companies that are expected to post widening deficits of $0.14 a share, but the similarities end there. Avanir seeks to find cures for patients with central nervous system disorders. Its big drug on the market is Nuedexta, a treatment for uncontrollable outbursts of crying or laughing that are symptomatic of neurological diseases or head injuries. Peregrine is trying to discover cures for cancer.
ABM Industries saw its shares take a hit the last time it approached the earnings stage. The facility-services provider disappointed on the top line. ABM's earnings were more than enough to cover its modest 2.6% dividend rate, but that's not a given if profitability continues to slide.
Best Buy was on top of the world a couple of years ago. Folks would drive to its cavernous superstores for great deals on electronics. Along came the Internet, letting locals know that they weren't getting such great deals after all. Even the liquidation of longtime rival Circuit City hasn't helped. The migration of physical media to digital media and wider accessibility to e-commerce have hurt Best Buy. The retailer's profitability and store-level comps have been delivering year-over-year declines for several quarters. Wall Street is braced for a repeat performance.
Rite Aid is the struggling drugstore chain that can't get its share price off the dollar menu. Losses aren't helping. You have to go all the way back to the summer of 2007 to find the last time that Rite Aid generated a quarterly profit. It won't happen next week.
Darden is the parent company of Red Lobster, Olive Garden, and LongHorn Steakhouse. There won't be any surprises here. Weakness at Olive Garden found the company hosing down its guidance earlier this week. Making it official with next week's report is simply a formality at this point.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
How do you think these stocks will fare when they report next week? Share your thoughts in the comments box below.
The Motley Fool owns shares of Darden Restaurants and Best Buy. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.