Earnings Trades for the Week

MINNEAPOLIS (Stockpickr) -- We get earnings from some big players this week, including technology bellwether Apple (AAPL). With many stocks moving 5%, 10% or more after releasing results, traders have the opportunity to pad portfolios with profits if they are on the right side of the action.

Last week, H.B. Fuller ( FUL) hit a homerun with its report, sending its stock up some 15%. There were no signs of higher input costs that could potentially impede future profits. It was a rosy report that was received favorably.

Also last week, Intel ( INTC) managed to impress and its stock rose modestly. The PC may be struggling, but larger server and mainframe sales helped results. It will be interesting to see where Intel goes from here.

Related: 3 Stocks Poised to Break Out

Wall Street may want to push shares of Commerce Bancshares ( CBSH) lower in order to assist a possible larger, acquiring bank, but the bulls are in control. Commerce beat estimates in its report and rode the coattails of JPMorgan's ( JPM) strong report higher.

Perhaps traders were resting on a Sealy ( ZZ) mattress. The company did in fact beat estimates by a penny, but shares barely moved. For longer-term traders, the lack of action makes for a low entry point in the stock going forward.

Shuffle Master ( SHFL) was another yawner. Its shares moved up and down after it reported year-end results that beat estimates by three cents. The stock closed virtually unchanged.

Looking forward, investors will likely require impressive earnings reports to move higher. We'll have a good read on the state of business in this country after this week's releases. Here are several names to trade .

Goldman Sachs ( GS)

After JP Morgan's report, the likelihood of Goldman Sachs offering a repeat performance increased, but is an earnings beat already priced into the stock? The strength and profitability of capital markets underwriting and trading is likely to propel Goldman higher.

This is a company capable of big earnings beats. Until the curtain is peeled back, only those on the inside know how much money this Wall Street king is making. I would expect Goldman to beat earnings by at least $1 above estimates of $3.78 a share. If it does, the stock could jump 5% or more.

Major holders of Goldman Sachs include Bruce Berkowitz at Fairholme Capital, at 7.7% of the total portfolio, and Julian Robertson at Tiger Management, at 8.2% of the total portfolio. Roberto Pedone considered Goldman one of the top bank and financial stocks for 2011. TheStreet Ratings rates Goldman a B- buy.

Delta Airlines ( DAL)

Airline stocks were big winners in 2010. Flying at close to full capacity and normalized fee charges helped this notoriously poor profit industry to soar. Suddenly airlines are money makers with stable operating environments and growth prospects.

Analysts expect Delta to make 25 cents a share in the quarter ending Dec. 31. Odds are that the company beats expectations. The only real fly in the ointment will be jet fuel prices. Will higher fuel costs eat into profits?

In the short term, higher fuel prices are of little concern. The wind is at the back of Delta and other carriers. A simple earnings beat for the quarter sends shares higher.

Delta shows up in the portfolios of George Soros, who increased his position in the stock by 364.9% in the most recent period, and Ken Heebner, at 4.3% of the total portfolio. The stock has a C hold rating from TheStreet Ratings.

eBay ( EBAY)

It is a tough thing to be a technological darling. In favor one minute, out of favor the next. It is always tough to keep a leadership position and even more difficult without innovation. Sit idly by and wave at the competition as it passes you by.

It may not be that bad for eBay, but this company is in danger of being swept under the rug. Smartphones, e-readers, tablet computers and their applications are taking the spotlight. Think about it: When was the last time you heard anything significant come from eBay?

It's been a while. eBay is expected to report a profit of 47 cents a share for the year-end quarter. Over the last year it has beaten the number by a few pennies on average. Another beat is likely, but without some sort of innovation or a significant beat of more than 5 cents a share, the stock will move lower as investors find more interesting growth opportunities elsewhere.

Major holders of eBay include Legg Mason's Bill Miller, at 2.8% of his total portfolio, and Donal Yacktman at Yacktman Asset Management. TheStreet Ratings rates eBay a B- buy.

Apple ( AAPL)

Do not bet against Apple. I've been on the Apple train before it became vogue to recommend this high-flying technology company. That was when the stock was below $100 per share. I said then and I will say again: This is a must-own stock in any portfolio.

As a tradable commodity, there has been one side of the coin since an impressive streak of product wins began after the turn of the millennium. Huge profits followed, and the rest has been history. There has been and never will be a company like Apple.

One would think shares traded for some ridiculous multiple, but they don't. For whatever reason, there are skeptics betting against this company. Perhaps they like to lose money.

My assumption is that Wall Street is once again underestimating the company. Analysts predict the company will make $5.38 per share. Over the last year, estimates have been too low and not by a penny or two.

When Apple beats it does so impressively. This quarter will be no different. Get long in advance and look for a 5% to 10% gain on the stock after results are released.

Apple comprises 11% of Tiger Global Management's portfolio, run by Chase Coleman, and 4% of Trafelet Capital Management's, a new position in the most recent period. With an A- buy rating from TheStreet Ratings, it's one of the top-rated computer hardware stocks, and it was one of JPMorgan's 13 favorite stocks for 2011.

Charles Schwab ( SCHW)

Has the individual investor finally recovered from the financial crisis and recession? Discount broker for the do-it-yourself investor sure hopes so. Mutual fund inflows have yet to recover, but in their place, ETFs have exploded.

In addition, the unpopularity of buy-and-hold investing has reinvigorated the trading activity of individual investors that Schwab caters to. All signs point to a strong earnings report, but investors have already figured that out pushing shares up by more than $4 in the last month.

It will take a big number to move the needle. Analysts expect the company to post a profit of 10 cents per share for the quarter ending Dec. 31. In the last year, Schwab has pretty much hit its number spot on.

I don't believe that sort of performance will be bullish for the stock. I expect Schwab to meet estimates. Investors will react with a buy-the-rumor, sell-the-news sort of trade. That means shares will be lower after the news.

Major holders of Schwab include Lone Pine Capital, a new position in the most recent period, and Robert Olstein at Olstein Financial Alert Fund. It's rated a C hold by TheStreet Ratings.

To see these stocks in action, check out this week's Earnings Trades 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 .

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