Buy Google, Microsoft and Verizon, Sell Chipotle

NEW YORK (TheStreet) -- Going into this week I wasn't exactly sure of what to expect this second full week of earnings season.

However, one thing that all investors should always expect is the unexpected, because surprises come in both positive and negative directions.

In this article we are going to look at four companies that will be reporting on Thursday and see if we can anticipate correctly which side of the surprise to play.

Ahead of these reports, I have buy recommendations on Google ( GOOG), Microsoft ( MSFT) and Verizon ( VZ) while I will be looking to unload shares of Chipotle ( CMG).

Let's dive right in to it and see if you agree.

Reason To Buy Google

First, I will admit that I have always had a personal love affair with Google. So my buy recommendation here should come as no surprise. In fact, recently I've asked if it can "MySpace" Facebook ( FB). This was after the social network giant has showed some recent declines in active monthly users.

On the other hand, Google's own social network Google+ continues to gain traction - acquiring more users than Facebook did in its first year, topping 250 million.

What's more, Google just recently announced its plans to enter the tablet war by unveiling its highly anticipated Nexus 7 devices, presumably to compete against not only Apple ( AAPL), but also Android partner Amazon ( AMZN), whose Kindle Fire tablet will be priced along with Google at $199.

Google is due to report earnings on Thursday after market close and investors have some reasons to be excited as well as areas where anxiety might set in so it's best to take the "expect the unexpected" approach.

In its first-quarter report, the company reported better-than-expected profits of $10.08 per share vs. analyst estimates of $9.64. Excluding revenue passed on to partner sites, sales rose to $8.14 billion, matching estimates. The company's gross revenue grew by 24% to $10.6 billion on an annual basis and 1% sequentially. What also caught my attention was the better-than-expected performance of its network, something that I don't think for which Google gets enough credit.

Meanwhile, it did show some deceleration in revenue growth -- something that has become apparent over the past two quarters. Its net revenue has shown a noticeable decline from 27.7% in Q4 2011 to 24.4% in Q1 2012. So investors would be wise to keep an eye on that area. Moreover, while it has done an excellent job managing a reduction in ad revenue, it has yet to provide additional details regarding its strategy in terms of its acquisition of Motorola ( MMI).

From an investment perspective, I maintain that Google is one of those stocks that is a buy at any level. At its current level of $576, the stock is down 14% from its 52-week high of $670. I would be adding shares at current levels and buying more on any signs of weakness. The stock should easily cross the $600 mark before the end of the third-quarter on its way to at least one more 52-week high before the end of the year.

Reason To Buy Microsoft

Microsoft is not Apple, and only for this reason it is perceived to be permanently down even though its numbers tell a different story.

It goes without saying that this is not the pre-2000 Microsoft when it was "Apple before Apple." Its current businesses from software and enterprise still produce a considerable amount of cash and decent growth. But that's soon all about to change. As with Google, Microsoft has also recently announced plans to make a tablet of its own called Surface.

While Microsoft has been fraught with stock and product disappointments over the past decade, expecting it to narrow the gap with Apple, which has a considerable lead, is a tall task. But I think its biggest risk would be to sit idle and do nothing.

Microsoft has now realized that if it truly aspires to grow to the extent that the market can once again consider it among the ranks of Apple and Google, it must think of Windows expansion outside of the traditional PC and into the realm of mobility.

Be that as it may, it still have to prove not only that it can build an ecosystem to rival that of Apple, but now it has to also contend with Amazon as well as Google. To that end, with the use of chip technology from ARM Holdings ( ARMH) its soon to be released Windows 8 is expected to be a game-changer, scaling not only to traditional laptops and desktops, but to tablet and smart phone devices as well.

How it handles the Windows 8 launch will go a long way toward restoring some of the level of respect that it has lost over the years. But I think the best way to assess Microsoft and its value is on its performance this current quarter, rather than what the competition is doing.

At a stock price of 30 and trading at a P/E of 9, value investors with 12-to-24 month investment horizons should consider giving the company a long look at current levels as any degree of success with Windows 8 can push the stock to $40 easily this year.

Reason To Buy Verizon

While I've always been a fan of Verizon's stock for its element of safety and the fact that it offers one of the best dividend yields on the market at 4.62%, I have recently started looking more at the stock when last week an equity analyst at Oppenheimer raised his price target on the stock to $48.

While not a significant premium above the $45 that the stock is trading at today, I was drawn to what the company has been doing with its network to prepare for the inevitable increase demand that will come from the growing popularity of not only smarphones, but also the race towards the cloud.

For that matter, Verizon offers one of the fastest mobile networks on the planet. Its 4G LTE network, available in over 200 cities, is considered one of the most advanced services anywhere -- allowing customers to download movies, photos, Apps, games, news and pretty much any content within a matter of seconds. The company is also aggressively expanding the network to cover its existing nationwide 3G infrastructure by the end of 2013.

As far as the cloud is concerned, Verizon, with its recent acquisition of Terremark, offers global enterprise-class IT as well as security services by combining advanced IT infrastructure with world-class provisioning and automation capabilities -- one that is reliable and able to scale based on the enterprise needs. It offers these services regardless of whether or not the company is in the midst of an expansion or simply trying to do more with less.

The company makes it easy to extend IT infrastructure into Verizon's cloud services. So from an investment standpoint investors have to be pleased that the company is still investing in its own network and realizing that in order to remain dominant it cannot afford to rest on its laurels.

What's more, the company's earnings per share of 93 cents continue to outperform both AT&T ( T) as well as Sprint ( S) which generates 69 cents and negative $1.11 respectively.

Even more noteworthy is that fact that when comparing Verizon's operating metrics and focusing on areas such as return on average assets and return on average equity, its performance far exceeds that of its peers by a significant margin.

Furthermore, its beta value of 0.51 continues to be one of the lowest within the entire sector, making it one of the top performers when assessing risk/reward ratios. For these reasons, Verizon should be added at current levels and should be under heavy accumulation at any signs of weakness.

Reason To Sell Chipotle

As much as I love eating at Chipotle, its stock price has never really made sense to me. I've never believed in companies that are priced for perfection as it appears to be.

In examining Chipotle, I have realized that it has to continue to execute flawlessly in order to maintain its lofty valuation. While it has done a remarkable job so far at doing just that, one slipup can send shares spiraling down to more sensible levels.

As the company is heading into its earnings announcement, I think the cautious play would be to lock in profits if you are currently in the money. However, I will admit that may also be a risk in of itself.

The company reported an exceptional first quarter and delivered a performance where revenue of $641 million beat the consensus of $631 million and its comp increase of 12.7% exceeded estimates of 10.2%.

The question is, can the company deliver another double-digit comp in light of some recent economic challenges?

There's a decent chance that it will. However, that does not change my view of the fact that its valuation is significantly higher than other food and beverage companies such as McDonald's ( MCD) and Starbucks ( SBUX).

With the stock trading at just under $400 with a price-to-earnings multiple of 35, more than doubling McDonald's, I would consider selling shares ahead of its earnings report and look for a re-entry under $390 and possible $385.

Bottom Line

Earnings season can be both an exciting time as well as one that brings a lot of anxiety for companies as well as investors. It's called the reporting period for more than one reason as companies are essentially sharing their quarterly report cards - where getting a passing or failing grade often depends on the expectations that were set.

In a separate article we'll look at possible earnings plays in McDonald's, Texas Instruments ( TXN) as well as Netflix ( NFLX).

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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