5 Reasons to Worry About Next Week
Jan 6th 2012 10:37AM
Updated Jan 6th 2012 2:18PM
It may be a new year, but we're still lugging around many of the same old problems.
There's fiscal uncertainty in Europe. Investors don't trust some corporations. Tim Tebow has backed his way into the playoffs.
Well, there's nothing we can do about Tebowmania beyond letting itself play out this weekend, but there is something we can do about calling out the companies that aren't carrying their weight if we want stocks to come back strong in 2012.
There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (estimated)
Year-Ago Quarter EPS
|Alcoa (NYS: AA)||$0.01||$0.21||Add|
|Schnitzer Steel (NAS: SCHN)||$0.23||$0.64||Add|
|SMSC (NAS: SMSC)||$0.33||$0.52||Add|
|Zep (NYS: ZEP)||$0.16||$0.27||Add|
|JPMorgan Chase (NYS: JPM)||$0.93||$1.12||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Alcoa.
The aluminum giant revealed plans yesterday to scale back its smelting capacity by 12%. Alcoa will get there by closing an aluminum smelter in Tennessee, trimming operations at a Texas facility, and making a few global moves.
Cutting costs in order to cope with weak aluminum prices is a painful strategy, but the financials bear out the problem. Three months ago, Wall Street figured that Alcoa's bottom line would match the $0.21 a share it earned a year earlier. The pros have been slashing their estimates, and now Alcoa will be lucky if it's even profitable.
Schnitzer Steel Industries recycles ferrous and nonferrous scrap metal. Things seemed to be going well last year. There was one quarter that found 78% of Schnitzer's ferrous sales volume exported to buyers in China, South Korea, Turkey, and elsewhere. Healthy overseas demand was good enough to result in double-digit sequential gains in revenue and operating income.
Well, things aren't looking so hot right now. The same analysts that were banking on Schnitzer earning $0.95 a share this quarter have whittled down their projections to a mere $0.23 a share. Maybe it'll find a commiserating partner next week in Alcoa.
The pros haven't been having a change of heart with SMSC. They've been stuck at $0.33 as their per-share target for months. The seller of silicon-based integrated circuits issued guidance four months ago calling for adjusted earnings to clock in between $0.30 a share and $0.37 a share during the period, and it has given company watchers little reason to veer from that original projection.
Zep hasn't been aiming to please lately. You have to go back six quarters to find the last time that the maker of cleaning and maintenance solutions has beaten Wall Street's bottom-line expectations.
JPMorgan Chase is the banking giant that's brave enough to report earnings before most of its financial heavyweight peers report the following week. Fellow Fool Sean Williams is bullish on the prospects of this country's major money center banks in 2012, but I'm still gun-shy.
Either way, JPMorgan is wrapping up fiscal 2011 the wrong way if we go by the 17% decline in profitability that the prognosticators are targeting.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
If five reasons to worry aren't enough, here's one more. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever so check it out now.
At the time this article was published The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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