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3 Predictions for Next Week

By Rick Munarriz - Apr 21, 2013 at 3:00PM

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This Fool sees a limb to go out on.

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

  • I predicted that People's United Financial (PBCT) would close higher on the week. The regional banker had come up short on the bottom line in its two previous quarters, and the prior week closed with uninspiring earnings news out of the banking behemoths. People's United managed to match expectations on an operating basis, but the market was skeptical of financial services institutions this week. People's United Financial shares closed lower on the week. I was right.
  • I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average. (^DJI 0.08%). This has been a tricky call lately, so how did it play out this time? Well, the market was rocked hard this week, and secondary stocks led the way down. The Nasdaq fell 2.7% on the week. The Dow managed to close just 2.1% lower. I was wrong.
  • My final call was for United Rentals (URI -1.91%) to beat Wall Street's quarterly profit target. The provider of equipment rentals with 836 outlets across the country has been beating Wall Street estimates consistently over the past year. Why should that end? Analysts were looking for a profit of $0.47 a share during the quarter, and it came through with adjusted net income of $0.58. I was right.

Two out of three? I can do better than that.

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. Apple will close higher on the week
I predicted two weeks ago that Apple (AAPL -1.07%) would move higher, and it was the right call. Thankfully, I steered clear of repeating that call last week, as shares of the consumer tech giant plunged to a 52-week low.

Well, it's time to side with Apple again. Tuesday's quarterly report won't be pretty, but investors are already braced for the worst. They know that profitability will slip, margins will contract, and sales growth will continue to decelerate. However, Apple is also likely to offer some reasons for analysts and investors to not entirely dismiss the world's most valuable technology company. The stock has gotten so cheap that only devastating news will slam the shares.

My call here is for Apple to movie higher on the week.

2. The Nasdaq Composite will beat the Dow this week
Tech has been a big winner in recent years, so betting on tech over stodgy blue chips has been a good bet for me more often than not.

I'm going to stick with this pick. Most of the names in the composite are just too cheap at this point. 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.

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

Lumber Liquidators (LL -3.38%) is the leading standalone retailer specializing in hardwood flooring. At a time when the housing market is showing signs of life, Lumber Liquidators is roaring. As home prices move higher, owners can upgrade their flooring to stylish hardwood planks without fearing that banks will take over their properties now that they're no longer underwater.

Another thing this company does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.42 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.

 Quarter

EPS Estimate

EPS

Surprise

Q1 2012

$0.25

$0.29

16%

Q2 2012

$0.29

$0.43

48%

Q3 2012

$0.34

$0.46

35%

Q4 2012

$0.43

$0.50

16%

Source: Thomson Reuters.

Things can change, of course.

Consumers can turn to cheaper home upgrades. Hardwood can fall out of style. The improving quality of planks can lead to longer replacement cycles. However, none of that seems to be a factor in the near term. 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.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,223.42 (0.08%) $26.76
Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.54 (-1.07%) $-1.57
Lumber Liquidators Holdings, Inc. Stock Quote
Lumber Liquidators Holdings, Inc.
LL
$11.13 (-3.38%) $0.39
United Rentals, Inc. Stock Quote
United Rentals, Inc.
URI
$282.93 (-1.91%) $-5.51
People's United Financial, Inc. Stock Quote
People's United Financial, Inc.
PBCT

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

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