3 Stocks That Blew the Market Away

Beating the Street isn't a crime. If anything, it's punishable by a sentence of higher share prices. That's because when even Wall Street's finest analysts underestimate what a company is capable of earning, it may lead to more welcome surprises in the future.

That said, let's take a closer look at a few of the companies that humbled the prognosticators this past week.

We'll start with Tweeter Home Entertainment (NASDAQ:TWTR). When investors think of the no-brainer trend toward higher-end flat-panel plasma and LCD televisions, they tend to favor either the manufacturers like LG.Philips (NYSE:LPL) or the consumer-electronics superstores like Circuit City (NYSE:CC). That's indeed a novel approach, but don't forget the more neglected plays like niche specialist Tweeter.

Last week, the company posted fiscal first-quarter earnings of $0.59 a share. That was well above the $0.23 per share it had earned a year earlier and more than double the $0.28 showing that analysts had been expecting.

Tweeter has been a neglected stock for some pretty good reasons. It has struggled to turn a profit outside the strong holiday quarters. It has also been closing some of its weaker stores. That explains why same-store sales are actually coming in stronger than overall sales growth lately. Still, this is the kind of blowout quarter that often helps a company ramp up its credibility. Let's see what Tweeter can do as it heads into the three seasonally sluggish quarters.

Netflix (NASDAQ:NFLX) was another topper. The popular Stock Advisor newsletter recommendation closed out its December quarter by crushing market expectations. Earnings before a favorable benefit were up 43%. Wall Street was guessing that the bottom line would inch only 7% higher. The company closed out 2005 with 4.2 million subscribers to its DVD rental service, a 60% improvement over its membership count a year earlier.

InfoSpace (NASDAQ:INSP) is the third company we'll be taking a look at this week. The company earned $0.39 a share when the market was holding out for only $0.27 a stub. As a second-tier paid-search player, InfoSpace naturally doesn't get the kind of respect that Google (NASDAQ:GOOG) and Yahoo! (NASDAQ:YHOO) receive. That's fair, though InfoSpace is also a leading player in the mobile-music market, where ringtones continue to sell like hotcakes.

Sure, that's lower-margin turf than the company's flagship metasearch business provides, but it gives the company two interesting growth avenues, and it's undervalued on both counts.

So keep watching the companies that lap expectations. Over time, it will be a rewarding experience for investors. That's the kind of surprise that market watchers relish in the Rule Breakers newsletter service. The strategy has paid off, because the average Rule Breaker selection has trounced the S&P 500's market return. Want in? Check out a 30-day trial subscription.

Either way, come back next Monday to learn about more stocks that blew the market away.

Longtime Fool contributor Rick Munarriz is a fan of toppers. He does own shares in Netflix. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.