Is this stock market fun, or what?
If you’re decidedly in the “what” camp, you’re likely starting this Brexit-laden week with an extra cup of coffee and a couple of Advil. That’s because last week, U.K. supporters of getting the heck out of the European Union stunned the pollsters and the bookies, voting 52 percent “leave” to 48 percent “remain.”
Both sides argued that Britain’s economy will be stronger on their side of the EU fence, but the majority of pundits and market participants viewed a Brexit as the more dangerous scenario for the U.K.’s economy — hence the plunge in global markets and flight into safe-haven assets.
“The increased uncertainty will manifest in a tangible impact to U.K. growth over the near term at the least,” says Katie Nixon, chief investment officer of Northern Trust Wealth Management. “Estimates of the impact vary, however there is near unanimity that the hit to GDP will be immediate and material.”
[See: The 9 Best Investors of All Time.]
But it’s that lack of consensus on just how bad a Brexit could be that is ramping up uncertainty and fear around the stock market. Also, a twist involving how British Prime Minister David Cameron announced his resignation without invoking Article 50 — a formality that essentially starts the clock on actually separating from the EU — now has some speculating on how long it will actually take Britain to leave.
So, what should we rightfully expect from the markets this week?
“As the world learns that Britain leaving the EU is now a reality — something no one expected to truly occur — one thing is for certain: market volatility,” says Ric Edelman, chairman and CEO of Edelman Financial Services. “Why? Investors can handle hearing both good and bad news, but what they hate is not knowing whether the news is good or bad.”
However, as Finish Line (ticker: FINL) proved last Friday with a 22 percent jump, it’s not impossible to rise above any Brexit-fueled negativity — you just need to be fortunate enough to have both a scheduled earnings report and better-than-expected financial results.
Here’s a look at a few stocks that might replicate that magic formula this week:
Nike (NKE). One of Nike’s highest-profile athletes, LeBron James, improbably brought Cleveland a long-lusted-after championship, but that hasn’t done much for Nike’s fortunes. NKE shares are quietly having a pretty rotten year, down 15 percent year to date, fueled in part by a pair of revenue misses.
And not much is expected out of Nike’s fiscal fourth-quarter earnings report, due out Tuesday evening. Analysts see earnings sliding by a penny per share to 48 cents, on lukewarm revenue growth of 6.4 percent to $8.28 billion. Wall Street is particularly nervous because of the confluence of Sports Authority’s bankruptcy and Foot Locker’s (FL) decline in basketball shoe sales over the past few months.
Sadly, Nike might not be Brexit-proof. More than 3 percent of the company’s revenues come from the U.K., and not only could Brexit fears stifle spending in the nation, but Macquarie analyst Laurent Vasilescu says the drop in the pound could also weigh on Nike’s results.
[Read: Why Warren Buffett Snapped Up Apple Stock (AAPL).]
The bar is set low, though, giving Nike ample opportunities to surprise to the upside. A failure to do so, though, will leave NKE caught in the Brexit undertow.
Darden Restaurants (DRI). Darden Restaurants — the company behind Olive Garden, LongHorn Steakhouse and Bahama Breeze, among other chains — is managing to keep its head above water this year, with DRI shares up about 5 percent for the year.
That included overcoming the sudden April departure of chairman Jeffrey Smith, also an activist hedge fund manager for Starboard Value. Smith had agitated to have Darden’s board replaced in October 2014, and he helped steer the company to 50 percent gains since then.
Analysts expect Darden to report quarterly profit growth of about 7 percent to $1.08 per share when it announces earnings Thursday morning. However, revenues are expected to slide 3.3 percent.
If there’s a reason to believe in DRI’s ability to beat Wall Street’s expectations this quarter, it’s the fact that low gas prices have kept a lot of money in consumers’ pockets. That plays well against Darden’s main business — Olive Garden, which is low-priced and which makes up 55 percent of Darden’s revenue.
Just note that DRI shares have plateaued for almost a month and held up well against the Brexit-sparked market sell-off. It could be that Darden will reward the faith … or we could be looking at the past week or so as merely a stay of execution.
Pier 1 Imports (PIR). Pier 1 is having itself a nice 2016, with shares boasting 12 percent gains so far. But broadly speaking, things at Pier 1 are hardly peachy.
Shares are off more than 75 percent since mid-2013. While revenues have slowly ticked higher, net income has plunged from $129 million in the 12 months ending in March 2013 to less than $40 million three years later, thanks in large part to increases in cost of revenue and selling, general and administrative expenses. In its most recent quarter, earnings fell nearly 44 percent, with margins taking a hit thanks to heavy promotions and “inventory-related inefficiencies.”
And generally speaking, the past few months have been pretty poor to retailers reporting earnings, so it’s hard to have much confidence in Pier 1 on that front, too.
Pier 1’s saving grace might just be its e-commerce sales, which improved 45 percent in its most recent year and is slowly becoming a thicker part of the overall revenue picture (15 percent as of the fourth quarter). Meanwhile, the company is also closing locations to improve profitability.
[See: 11 Ways President Trump’s Tax Plan Could Affect Americans.]
Analysts estimate that PIR stock will flip from an 8-cent profit to a 5-cent loss when it reports fiscal first-quarter earnings Wednesday, on a nearly 3 percent decline in revenues, no less. In other words, no one is expecting much, so if Pier 1 simply managed to keep costs a little lower, that might be enough to impress investors.
More from U.S. News
8 Soaring Stocks That Suffered the Big Bounce
13 Money Hacks to Turbocharge Your Investments
What to Expect From Wall Street’s Brexit Swoon originally appeared on usnews.com
