I went out on a limb last week, and now it’s time to see how that decision played out.
I predicted that Pandora Media Inc (NYSE:P) would close lower on the week. The leading music streaming service had been hitting new highs ahead of a report that had to be spectacular to justify the recent gains. It wasn’t. The stock was moving higher ahead of Thursday afternoon’s report but gave it all back and then some, after the poorly received report. Pandora Media Inc (NYSE:P) shares plunged 13% on Friday, taking it 7% lower for the entire week. I was right.
I predicted that the tech-heavy Nasdaq would outperform the Dow Jones Industrial Average (INDEXDJX:.
My final call was for Hewlett-Packard Company (NYSE:HPQ) to beat Wall Street’s income estimates in its latest quarter. The PC market has been horrendous lately, but Hewlett-Packard Company (NYSE:HPQ)’s business services and other tech specialties have bailed it out in the past. It had also been posting blowout quarterly results over the past year. I was banking on seeing the trend continue. Analysts were looking for a profit of $0.87 a share during the quarter, and it came through with net income of $0.86. The stock fell on the report. I was wrong.
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. Microsoft will close lower on the week
Steve Ballmer’s pending departure at Microsoft Corporation (NASDAQ:MSFT) intrigued and delighted the market on Friday. The stock soared 7% in anticipation of a brighter future at the software giant.
Really?
I think reality will kick in during the week ahead. There’s no CEO out there who can restore things to the way they were before Android and, to a lesser extent, iOS made Windows less relevant. The game has changed permanently.
The type of buzz we saw on Friday is usually accompanied by CEO changes at companies that are buyout bait, and that’s certainly not the case here. A stock pop of this sort likewise happens at companies where a new CEO can institute an easy fix, and that’s certainly not happening here, as Microsoft Corporation (NASDAQ:MSFT) embarks on the long transformation into a devices and services company that may never be as lucrative as it was when the world has no choice but to embrace Windows as its premium operating system of choice.
My first call is for Microsoft Corporation (NASDAQ:MSFT) to close lower 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, and tech should be what carries us through the economic recovery. Yes, earnings reports have been rough in some places this season, but the long-term outlook is still quite favorable.
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. OmniVision will beat Wall Street’s earnings estimates
Some stocks are just flat-out better than others.
OmniVision Technologies, Inc. (NASDAQ:OVTI) is the leading maker of image sensors used in cameras. This seemed to be a fading market when digital cameras and laptops began to diminish in popularity, but the mad scramble by smartphone and tablet makers to make sure their devices take slick pictures put OmniVision Technologies, Inc. (NASDAQ:OVTI)’s sensors in high demand.
Another thing the company does is make analysts look like perpetual underachievers. If analysts say OmniVision Technologies, Inc. (NASDAQ:OVTI) posted a profit of $0.43 a share in its latest quarter, I’ll argue that it held up better than that. 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 Est. | EPS | Surprise |
|---|---|---|---|
| Q1 2013 | $0.22 | $0.21 | (5%) |
| Q2 2013 | $0.31 | $0.33 | 7% |
| Q3 2013 | $0.41 | $0.56 | 37% |
| Q4 2013 | $0.21 | $0.31 | 48% |
Source: Thomson Reuters.
Things can change, of course. Wall Street isn’t being conservative anymore, and it sees profitability more than doubling on a healthy 46% spike in revenue this quarter. It’s also possible that another price war can break out, sending margins — and naturally earnings — lower.
However, it’s hard to argue against the trend. 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.
The article 3 Predictions for the New Week originally appeared on Fool.com and is written by Rick Munarriz.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Pandora Media (NYSE:P) and owns shares of Microsoft.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
