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3 Predictions for Next Week

By Rick Munarriz - Oct 28, 2012 at 3:00PM

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This Fool sees a limb to climb out on, and he's the adventurous type.

I went out on a limb last week, and now it's time to see how that decision played out.

  • I predicted that Netflix (NFLX 2.72%) would close out the week higher. It certainly didn't start out that way. Shares of premium video-service provider tumbled after reporting soft domestic streaming subscriber growth in its latest quarter. However, just when it seemed as if this was a losing wager, Netflix shares bounced back with a 13% pop on Friday after buyout rumors began to surface. On the week, Netflix shares closed 7% higher. I was right.
  • I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average. (^DJI 1.27%). This has been a winning call lately, as faster growing tech stocks outpace the Dow's 30 blue chips. The market had a bumpy week. The tech-heavy Nasdaq closed 0.6% lower. The Dow, on the other hand, shed 1.8% of its value for the week. I was right.
  • My final call was for (ACOM) to beat Wall Street's profit target. The company behind the leading premium genealogy website had landed ahead of the prognosticators during every quarter over the past year. It seemed like a smart bet, but it initially didn't seem as if things would play out that way. On Monday, announced that it will be taken private at $32, the low end of the rumored buyout range. Would sell itself so cheap if a blowout quarter was in the works? Well, earned $0.54 a share, well ahead of the $0.49 analysts were expecting. I was right.

Three for 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.Spirit Airlines will come up short on the bottom line in its latest quarter
I'm no fan of Spirit Airlines (SAVE -0.45%). I think the discount air carrier's model is a recipe for negative passenger experiences. Sure, the fares are cheap, but when you sometimes have to pay more for a carry-on -- yes, a carry-on -- than for an actual passenger, even thrifty passengers are going to eventually have had enough.

This brings us to Tuesday's quarterly report. Analysts see Spirit earning $0.35 a share for the period. Just a few months ago, these same pros figured that Spirit could earn as much as $0.60, but that's history. Pesky fuel prices against cheap fares is a flammable combination.

Even though Spirit Airlines has found a way to land ahead of Wall Street estimates in recent quarters, I think it will be in for a bumpy landing. My first prediction is for Spirit to earn less than the $0.35 a share Wall Street is targeting.

2.The Nasdaq Composite will beat the Dow this week
Betting on tech over stodgy blue chips was a steady winning bet for me earlier this year. This has been a losing bet lately, but I still think technology is the best sector to be invested in these days.

I'm going to stick with this pick. Most of the names in the composite are just too cheap at this point, and they will be reporting quarterly results in the coming days. The market is ripe for the tech-stacked secondary stocks to continue to outpace the 30 megacaps that make up the Dow Jones Industrial Average as we kick off the fourth quarter.

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

Ellie Mae (ELLI) is booming these days as a high-tech and low-cost provider of mortgage processing services. Last year, 20% of the country's mortgages went through its Encompass platform and its Ellie Mae Network.

Ellie Mae has been one of this year's hottest stocks. The rebound in the housing market and refi-friendly low rates have combined with Ellie Mae's growing and widening presence in the mortgage market to deliver eye-popping growth.

Another thing it does is make analysts look like perpetual underachievers. If analysts say that the company earned $0.20 a share in its latest quarter, I'll whip out a "greater than" sign. 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.


EPS Estimate



Q3 2011




Q4 2011




Q1 2012




Q2 2012




Source: Thomson Reuters.

Things can change, of course. Ellie Mae completed a secondary offering this summer, a dilutive move that increases the number of shares outstanding. Despite encouraging news on the housing front in recent months, there's always the chance that Ellie Mae begins to lose market share instead of gain it.

These don't seem to be factors that will have to great of a negative impact on the quarter, though. Everything seems to be falling into place for another strong quarter on the bottom line.

Three for the road
Well, there are three predictions right there. Let's see how I fare this week.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool owns shares of and Netflix. Motley Fool newsletter services recommend, Ellie Mae, and Netflix. 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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,761.05 (1.27%) $424.38
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$24.57 (-0.45%) $0.11
Ellie Mae, Inc. Stock Quote
Ellie Mae, Inc.
Netflix, Inc. Stock Quote
Netflix, Inc.
$249.30 (2.72%) $6.60 LLC Stock Quote LLC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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