How to Trade This Week's Earnings
MINNEAPOLIS (Stockpickr) -- The market can go up or down, but within the general framework are individual stories. Some stocks trade higher, and some stocks trade lower. Separating the winners from the losers can put big money in the pocket of traders.
Last week I gave a preview of a few stocks that I believed would
trade higher or lower based on beating or missing Wall Street estimates
. As indicative of the winding down of the trading year, two of the selections were mere duds, but two others moved substantially.
Casey General Stores
(CASY) - Get Report
shares did dip slightly after it beat earnings estimates. The drop would have been larger had the company indicated margin pressure due to oil price increases. Shares essentially traded flat after the news.
Costco
(COST) - Get Report
beat estimates, but shares did not pop higher as expected. Margin improvement and a 2-cent beat were not enough to impress investors. Shares gained slightly after the report.
The big movers last week were
Smith & Wesson
(SWHC)
and
National Semiconductor
(NSM)
. As expected, Smith & Wesson indicated that U.S. sales were slowing and that fear-based purchases were evaporating. Shares were down more than 5%.
National Semiconductor provided a mixed report. The company did beat estimates, but a weak forecast doomed shares. The stock was down more than 7% after the news. Traders were afforded the ability to sell at the open as the stock traded only slightly lower.
Looking ahead to this week we have a number of big names reporting results -- and
a number of trading opportunities to exploit
as we head toward the end of the year. Here are a few options:
Research In Motion
(RIMM)
I don't like Research In Motion over the long haul, but that does not mean shares cannot be traded for short-term gains. On Dec. 16, the company is scheduled to report earnings for the quarter ending Nov. 30.
By all appearances, Research In Motion has generated some buzz with its smartphone launch. Will that be enough for the company to beat expectations? Analysts currently expect the company to make $1.64 per share.
The perception is that the company has lost market share to rivals, including
Apple
(AAPL) - Get Report
, but the company has beaten expectations over the last two quarters. Reflecting the negative sentiment, RIMM shares are down for the year.
That said,
, with evidence of an uptick in sales. Despite the move higher, RIMM trades for only 10 times the 2011 estimate of $6.05 per share. If indeed its smartphone has struck a positive chord with customers, shares are poised to move higher.
I expect an earnings beat next week and would be long the stock in advance of the report.
Best Buy
(BBY) - Get Report
We'll get an early read on the holiday selling season with the earnings report from Best Buy on Dec. 14. The electronic retailer should be the beneficiary of a strong selling season. By all accounts, it looks like Best Buy will beat estimates.
Analysts currently expect Best Buy to report a profit of 61 cents per share. Over the last year, the company has had mixed results on the beat-the-number game. For three out of the last four quarters, the company has beat the number -- but for the one quarter that it missed, it missed big.
Shares of Best Buy have rebounded nicely since bottoming in early September and trade for only 11 times the 2011 estimate. Estimates are for earnings growth of just under 10% between 2011 and 2012.
That seems a bit pessimistic to me. The economy is stronger than many think, and consumer confidence is rising. Analyst estimates have been trending higher over the last 90 days to reflect the current environment.
The numbers are still too low. I expect a beat and more gains for the stock next week.
FedEx
(FDX) - Get Report
One of the barometers for the health of the economy is
FedEx
(FDX). The overnight shipping company reports earnings on Dec. 16 for the quarter ending Nov. 30. With only a few days of the holiday season included in the report, the real point of note for investors will be the forecast going forward.
Analysts expect FedEx to make a profit of $1.31 per share for the period. That number has dropped over the last 90 days. My guess is that analysts have not incorporated a stronger-than-expected start to the holiday season.
Over the last two quarters, the company has pretty much met expectations. This quarter should be more of the same. There will be no surprises here.
The big surprise will be in looking at the future. Higher jet fuel costs will negatively impact margins. Those increases may be difficult to pass along to consumers given the fragile economy.
As such, I don't think the actual earnings number means much for traders. What will matter is the forecast. If the company does mention higher fuel prices, look for shares to trade lower. If not, the stock will likely move sideways.
For more stocks reporting earnings this week, check out the
portfolio.
-- Written by Jamie Dlugosch in Minneapolis.
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At the time of publication, author had no positions in stocks mentioned. Jamie Dlugosch is a founder and contributor to
MainStreet Investor
and
MainStreet Accredited Investor
. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to
The Rational Investor
,
The Prudent Speculator
,
Penny Stock Winners
and
InvestorPlace Media
.