Pandora Media Inc (P), Hewlett-Packard Company (HPQ): Three Predictions for the New Week

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

  • I predicted that Tesla Motors Inc (NASDAQ:TSLA) would close higher on the week. The fast-growing company behind the only electric car turning heads these days has been one of this year’s hottest stocks, and it had hit new highs after delivering a surprising profit a week earlier. Despite the positive momentum, I thought the stiff valuation warranted a breather — at least for a week. The stock fell 7% on the week. I was right.
  • I predicted that the tech-heavy Nasdaq would outperform the
    Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI). This has been a tricky call lately, so how did it play out this time? Well, this wasn’t a good week for stocks. The Nasdaq moved 2.2% lower, and the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) managed to close 1.6% lower. I was wrong.
  • My final call was for Brocade Communications Systems, Inc. (NASDAQ:BRCD) to beat Wall Street’s income estimates in its latest quarter. The provider of networking data storage solutions has been posting blowout quarterly results over the past year. I was banking on seeing the trend continue. Analysts were looking for a profit of $0.12 a share during the quarter, and it came through with net income of $0.19. The stock soared on the blowout report. 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. Pandora will close lower on the week
The market’s turning up the volume on Pandora Media Inc (NYSE:P) these days. The leading music-streaming service is growing, and analysts are generally upbeat about the music-discovery platform. Shares hit another 52-week high on Friday as it gears up to report its latest quarterly results on Thursday.

I’m a little more concerned about the near term. Pandora Media Inc (NYSE:P)’s metrics in recent months haven’t been encouraging. Growth has been slowing, and the average user is listening less. Naturally, this isn’t necessarily awful for Pandora Media Inc (NYSE:P). It’s merely shaking off the freeloaders who used to tune in a lot and cost the company more in music royalties than it was making off those users through ad revenue.
Pandora Media Inc (NYSE:P)’s revenue can grow, and it probably will report a healthy boost in premium subscriptions. However, the stock has run up so high in anticipation of a blowout report that it makes a sell-off after the results are released possible.

My first call is for Pandora Media Inc (NYSE:P) to close lower on the week.

2.The Nasdaq Composite will beat the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) 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 2 Minute (INDEXDJX:.DJI).

3. Hewlett-Packard Company (NYSE:HPQ) will beat Wall Street’s earnings estimates

Margaret Whitman

Some stocks are just flat-out better than others. Hewlett-Packard Company (NYSE:HPQ) is the world’s largest maker of personal computers. That may not be the best place to be at the moment, but with a smaller rival eyeing privatization, and other players scrambling to make a dent in the growing smartphone and tablet markets, it does create an opportunity for Hewlett-Packard Company (NYSE:HPQ)’s underestimated non-PC businesses to shine.

Another thing it does is make analysts look like perpetual underachievers. If analysts say the company posted a profit of $0.87 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 Estimate EPS Surprise
Q3 2012 $0.98 $1.00 2%
Q4 2012 $1.14 $1.16 2%
Q1 2013 $0.71 $0.82 16%
Q2 2013 $0.81 $0.87 7%

Source: Thomson Reuters.

Things can change, of course. Cynics will argue that $0.87 a share isn’t a victory after Hewlett-Packard Company (NYSE:HPQ) earned $1 a share during the same period a year earlier. Margin pressure on the PC side could also squeeze profits from the tech bellwether’s more resilient businesses.

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 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 Tesla Motors and owns shares of Tesla Motors.

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