Sell These Earnings Duds
Small-cap companies can be some of the most innovative and
profitable on the market and can bag you big gains. But if you pick
the wrong ones and end up with an earnings dud, you can do some
serious damage to your portfolio.
Today, I have 10 small-cap
stocks that you should sell
ahead of the companies' earnings announcements this week. These
companies are finding it hard to make a profit and are only
marginally growing sales or seeing business go to other
competitors. This is not the type of movement I like to see in my
stocks, and whenever a company with these fundamentals pops up on
my screen, I immediately bail out.
Here are 10 small caps to sell:
OM Group Inc. (OMG)
OM Group Inc
) is a producer of cobalt and metals-based powders and specialty
chemicals that is seeing very erratic earnings and revenues. While
earnings for its industry are forecasted to grow 35% this year,
earnings for the company are likely to drop by 6%. There are some
signs that operations are recovering, but this is the part of the
stock market cycle where stocks with stellar earnings tend to
outshine those with mediocre ones.
Shares have been lifted by the hope that the company has a
division that is supplying chemicals for lithium-ion batteries used
in cellphones and electric cars. But that division accounted only
for a tiny part of overall sales and it could be years before it
becomes an earnings driver. It looks like more bark than bite with
OM Group, which reports on Thursday.
California Pizza Kitchen Inc. (CPKI)
California Pizza Kitchen
) is neither here nor there when it comes to the restaurant
business, as it operates or franchises a chain of casual dining
restaurants principally in the United States that focus on pizzas,
pastas, salads and other Italian specialties. The pizza business is
a crowded field, and high gasoline prices and weak employment are
deterring consumers from eating out.
This is why earnings for the company are forecast to rise only
6% this year while earnings for the industry will grow 21%. With
such mediocre earnings growth, the shares are likely to
underperform for the rest of 2011. CPKI is schedule to report
earnings on Thursday.
Caribou Coffee Company (CBOU)
Caribou Coffee Company
) is trying to compete with
), but it does not have the marketing muscle or the financial
backing in order to succeed in overcrowded field. Starbucks itself
had to close underperforming stores and is seeing huge competition
in NYC from privately-held Pret A Manger.
Caribou does not do much to differentiate itself from the
competition, which is why earnings are forecast to drop 20% in
2011, while the industry is slated to grow by 28%. CBOU is
scheduled to report earnings on Thursday.
) is fighting for relevance in the fast-changing technology sector.
It used to be a pioneer in the digital audio business with
network-delivered digital media products and services worldwide.
Its goal is to enable the creation, distribution and consumption of
digital media, but it has been squeezed by leaders in the field
It seems too small to survive on its own and is currently losing
money - the company is forecast to make no money in 2011 or 2012.
It might be a takeover target, but this is a very long shot not
worth taking. RNWK is scheduled to report earnings on Thursday.
Kite Realty Group Trust (KRG)
Kite Realty Group Trust
) is a small-cap real estate investment trust (REIT) with uncertain
payout in the struggling retail space. There is an oversupply of
retail space in the United States due to consumer retrenchment and
the popularization of online purchases. The company has been
reporting flat funds from operations results - the better way to
gauge a REIT's profitability than earnings - in a recovering
The questions investors have to ask themselves is, if they can't
make money when the economy is improving, what would happen if the
economy deteriorates? You should definitely stay away from this
stock, which is scheduled to report earnings on Thursday.
Cincinnati Bell Inc. (CBB)
Cincinnati Bell Inc.
) is a communications company that provides voice and data services
over wired and wireless networks. The company is a traditional
telecommunications company that is finding it hard to compete in a
world with an ever evolving telecommunications industry. Once upon
a time, telecom stocks used to be sure-bets for profits. Nowadays,
however, only the largest and the most innovative companies will
bring you profits, and this is not one such company.
CBB is expected to post earnings of 6 cents per share, a 50%
year-over-year decline, and only moderate sales growth. The company
has disappointed in the past two quarters, so I'm not expecting a
surprise to an upside this time around when the company reports on
Chiquita Brands International (CQB)
Chiquita Brands International
) has one of the most recognizable brands in the world, but you'd
never find this stock on any analyst's buy list. The company
distributes bananas and has also branched into other food groups,
like salad, healthy snacks and other produce. While the health food
movement is gaining traction, this company is barely breaking even
Its revenues are expected to decrease slightly year over year,
and past quarters' earnings results have been so erratic that it's
hard for analysts to accurately predict what the company will
report this quarter. Last quarter, it posted a 1,850% earnings
miss, and the quarter before that it missed the mark by 143%! Stay
away from this stock when it reports on Thursday.
Image Sensing Systems Inc. (ISNS)
Image Sensing Systems Inc.
) makes software-based detection systems for the intelligent
transportation systems sector. The company is on the cutting edge
of a budding industry, but ISNS shows that just because a company
is innovative doesn't mean it's profitable.
The company is expected to post a 10-cent-per-share loss for the
first quarter, compared with a gain of 13 cents per share in the
first quarter of last year. This sent off warning sirens in my head
as profits should never be decreasing and should only ever
increase. Stay away from this play come its earnings report on
Tree.Com Inc (TREE)
) is a loan company that provides information and advice on
different private and business loans. The company should be
benefiting from increased consumer spending and growing private
debt, but instead it is losing money.
Analysts are expecting a 29-cent-per-share loss when Tree.com
reports on Friday, and sales growth is expected to be anemic. The
lending industry is still not where it needs to be, and I would be
cautious with any kind of buying in this sector. TREE, however, is
especially bad, and I would recommend that you stay away from this
stock right now.
VisionChina Media Inc. (VISN)
VisionChina Media Inc.
) is an advertising company in China. The company operates TVs on
subways and in public spaces that broadcast advertisements and
commercials. There is obviously a growing consumer culture in
China, but it hasn't elevated to the level that a company like
VisionChina can make a major profit.
The company is expected to post a loss for the first quarter,
despite anticipated revenue growth of over 40%. Its earnings
results have also been erratic, with swings from positive surprises
of 33% to negative surprises of more than 5,000% from one quarter
to the next. Analysts have been getting more and more pessimistic
on this stock, and I give it a flat out D in
. Stay away from this play when it reports on Friday.