How to Trade This Week's Earnings
MINNEAPOLIS (Stockpickr) -- Market volatility may be slowing down as we approach the end of 2010, but there are plenty of stocks still moving wildly higher or lower on a case-by-case basis. Triggering those moves are earnings reports and forecasts that meet or beat expectations.
big loser was
Best Buy
(BBY) - Get Report
. The electronic retailer defied gravity with a crushing report that missed expectations and included reduced guidance for the future. Shares of Best Buy were down more than 15% on the news.
That is counter to what I expected here in this column. Thinking that a
strong holiday season would lift all ships
, I was blindsided by the big miss at the supposed leader in electronic sales.
Online sales and heavy pressure from discount retail kings
Wal-Mart
(WMT) - Get Report
and
Target
(TGT) - Get Report
hurt Best Buy's results. The company was steadfast in not reducing prices and it showed in reduced sales volume.
Related Article:
Such is life in the predictions business. I can't and won't hit every single one of these, but over time, I will have more winners than losers -- and that is what ultimately matters over the long haul.
One winner from last week was
Research In Motion
(RIMM)
. The company has a
hit on its hands with its new smartphone
, and the results showed in its recent earnings report. Shares moved higher on the news.
Investors had been too negative on this stock, setting up the gains on a positive report. The negativity remains, and the approximate 2% gains were minimal considering the operating performance. This trading event will likely have legs for those interested in RIMM for the long term.
The
Federal Express
(FDX) - Get Report
report was a mixed bag and did not include the expected warning regarding higher fuel prices. I would still contend that investors are missing this key component to the company's bottom line, but for now, the higher guidance was enough to lift shares higher.
We have a holiday-shortened week of trading, but there are plenty of companies releasing earnings. Here is my take on
three stocks expected to report earnings next week
.
Finish Line
(FINL)
We will see if the
will indeed lift all boats as we get results from shoe retailer Finish Line. The formerly struggling chain has been on an impressive two-year run. A stock that was trading below $5 per share now fetches nearly $20 per share.
Fueling the growth is profit momentum that may be slowing a bit. Last quarter the company missed expectations by 5 cents. In the current quarter, analysts are expecting a small profit of 5 cents.
For the full year ending in February, the estimate is for a profit of $1.26. For the next fiscal year, those profits are expected to grow to $1.37 per share. That 8% growth is nothing to excite investors.
With shares trading for 13.5 times the 2012 estimate, there is little margin for error. The trick here is that estimates have been wildly inaccurate for this company. If you are a believer in the retail story, results are likely to be higher than expected.
If you believe that positive momentum is slowing for this company, then look for a miss. I'm a believer in the retail consumer and as such I would place my bet an upside surprise.
Jim Cramer also has his eyes on Finish line
. On Friday's "Mad Money," he said that while
Nike
(NKE) - Get Report
is his favorite footwear player, Finish Line could post better results. And Roberto Pedone recently pointed out some
earnings short-squeeze potential in Finish Line
.
Nike
(NKE) - Get Report
The strength of the consumer is likely to reveal itself when Nike reports its results next week. The sports apparel company is a bellwether of sorts, with its products widely distributed at a variety of premium and discount outlets.
Nike has been a big winner, with shares gaining some 50%. Profits have consistently beaten estimates, with the biggest win coming last quarter when the company reported a profit of $1.14 when analysts expected $1.01.
In the current quarter the estimate is 88 cents. That number has been creeping higher over the last three months. Even so, shares still trade for 20 times the $4.42 2011 estimate. The company will have to put out a big beat for investors to bid the stock higher.
The trading play here is to bet against Nike. A miss would dampen enthusiasm for the stock, and shares would likely sell off as a result. A meet or slight beat will on push the stock slightly higher.
The risk of being short Nike in advance of earnings is low, and I would trade appropriately.
As of the latest reporting period,
still owned shares of Nike after cutting his position size by 52.3%.
is another institutional investor in the stock, which makes up 0.7% of the fund's total portfolio. Nike showed up in a recent portfolio of
stocks that would make for valuable holiday gifts
, on a recommendation by SICA Wealth Management's Jeffrey Sica. And as mentioned above, Nike is on Crame'rs radar too and shows up in the
Cramer's Retail Stocking Stuffers
portfolio of his retail stock picks.
Walgreen
(WAG)
Earnings for the big retail drugstore chain have been mixed over the last year, with two beats and two misses. During that time shares have traded both down and up, reflecting the mixed operating performance. Where will the results be in its next report?
On the surface, Walgreen should be a sleepy
. It will do okay during economic expansion but really shines when times are tough. Today as we emerge from a challenging recession, Walgreen looks more like a growth company.
The company made $2.17 per share in its last fiscal year that ended in August. Estimates for the coming year are for profits of $2.49 a gain of more than 15%. That is quite impressive indeed.
The estimate for the current quarter is 53 cents. That number has been steady for the entirety of the quarter. More interesting for traders is Walgreen's one-year stock chart. There we see a classic reverse head-and-shoulders pattern indicative of a bull run for the stock.
To get that run, Walgreen will need to beat the estimate this go around. Given the strength of the consumer, I would expect a beat here. Shares should jump as a result.
Major shareholders of Walgreen include
Arnold Van Den Berg at Century Management
,
John Hussman at http://stockpickr.com/pro/portfolio/john-hussman/
and
Edward Owns at Vanguard Health Care Fund
. Walgreen is one of
22 stocks that has increased his dividend every year for at least 30 years
-- in Walgreen's case, it's been 35 years of consecutive increases.
To see these stocks in action, check out the
How to Trade This Week's Earnings
portfolio.
-- Written by Jamie Dlugosch in Minneapolis.
RELATED LINKS:
>>High-Yield Retail Stocks for the Holidays
>>Top Stocks With Huge Insider Selling
>>4 Rare Earth metals Stock Plays
Follow Stockpickr on
and become a fan on
Facebook.
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
.