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3 Stocks That Blew the Market Away

By Rick Munarriz - May 20, 2013 at 9:20AM

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These three companies beat the market on the bottom line.

Don't settle for ordinary quarterly reports.

Every week, I take a look at three companies that beat market expectations, since I believe that it's the biggest factor in a stock beating the market. Leaving Wall Street's pros with stunned expressions can be a good thing. It usually means that the companies have more in the tank than analysts figured. Capital appreciation typically follows.

Let's take a look at a few companies that humbled the pros over the past few trading days.

We can start with Dangdang (DANG)Shares of the Chinese online retailer soared 24% last week after posting a narrower quarterly deficit than Wall Street was expecting. Dangdang's loss of $0.15 a share was less than the $0.19 a share in red ink that analysts were forecasting.

This is the third consecutive quarter in which Dangdang has posted a smaller loss than the pros were projecting.

InterOil (NYSE: IOC) was another gusher. The energy explorer's profit of $0.08 a share during the first quarter may not seem like much. Net income actually clocked in 58% lower than it did a year earlier. However, Wall Street was actually bracing for a quarterly deficit. InterOil stock moved 18% higher on the week.

Finally, we have Brocade Communications (BRCD) landing ahead of the prognosticators.

The networking storage specialist came through with a profit of $0.17 a share. Analysts figured that Brocade's earnings would be flat with the $0.15 a share it reported a year earlier. Brocade's beat came despite revenue coming in slightly below Wall Street estimates, translating into an even bigger positive surprise in terms of net margins.

It wasn't necessarily pretty for Brocade. Unlike Dangdang and InterOil, which rewarded investors with double-digit percentage gains last week, investors weren't swayed by Brocade's performance. A big reason for the letdown -- beyond coming up short on the top line -- is that the company's guidance for the current quarter is well below where analysts are presently perched.

Beating profit targets is just one ingredient in the recipe for superior market returns.

Moving in the right direction
It's important to keep watching the companies that surpass expectations. Over time, it will be a lucrative experience for investors as the market rewards the overachievers. That's the kind of surprise that we look for in the Rule Breakers newsletter service. Want in? Check out a 30-day trial subscription.

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Stocks Mentioned

E-Commerce China Dangdang Inc. Stock Quote
E-Commerce China Dangdang Inc.
Brocade Communications Systems, Inc. Stock Quote
Brocade Communications Systems, Inc.

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