NEW YORK (TheStreet) -- Let's review four companies that are about to report earnings and how I would trade their stocks.The four companies are Facebook ( FB), Amazon.com ( AMZN), Exxon Mobil ( XOM) and Hershey ( HSY).
Sell FacebookFacebook had one of the most highly anticipated IPOs of all time and its first earnings report is being preceded by a similar level of excitement. As much as I have been critical of the company's handling of its IPO, it does deserve some credit for having rebounded slightly from its recent lows of $25. However, I would highly recommend that holders of the stock sell ahead of the company's earnings report, which is scheduled for after the market closes Thursday. The reason for the concern is simple. Facebook's user growth appears to have peaked in November, and unique visitors to the site actually declined in recent months. Remarkably, rival Google's ( GOOG) Google+ service has continued to gain traction recently. ComScore, which specializes in Internet data and research, recently revealed a drop in Facebook's unique visitors. Although it was not a significant drop, the research firm did suggest it would last longer than anyone anticipated. This should raise a big question mark for investors. As for the quarter, analysts are expecting earnings per share of 15 cents on revenue of $1.18 billion. Investors will focus on the company's ability to sustain user growth and on how it monetizes mobile users. The company started its mobile initiative by incorporating sponsored stories into its newsfeeds. Any upside surprise in this area could send shares soaring. However, I think that is highly unlikely in light of the questions about user growth. The smart play here is to sell the stock ahead of the report and wait for shares to return to the $25 level or lower.
Hold AmazonAmazon.com is without question one of the best tech stories today. It is a wonderful company, and Jeff Bezos is a top, visionary CEO. But the stock continues to trade at what I consider an expensive valuation. I have never been a fan of so-called "premium pricing," although I will concede that it has never served as an impediment to growth stocks like Amazon. The question for "perfect stocks" such as Amazon.com has always been whether the company can grow into its high valuation. Although Amazon has done an excellent job of that so far, what happens when that stops? Investors got a lesson in what happens when companies that are priced to perfection stumble last week. Wall Street showed no mercy on Chipotle Mexican Grill ( CMG) and F5 Networks ( FFIV). In the first quarter, Amazon.com averted concerns about its growing expenses by blowing away analysts' estimates on both the top and bottom lines with earnings per share of 28 cents and revenue of $13.2 billion. The company said its rise in sales was driven largely by increased demand for the Kindle Fire. However, as great as these numbers were, I think it might be best to exercise some caution ahead of the second-quarter report and curb some enthusiasm. For the quarter, Amazon expects revenue to grow between 20% and 34%, or to between $11.9 billion and $13.3 billion, which includes the negative impact of foreign exchange movements. Ahead of the guidance, analysts had expected second-quarter revenue of $12.8 billion. That was higher than the midpoint of Amazon's forecast of $12.6 billion. With that in mind, and considering that the company has recently launched plans to build a larger tablet and may be preparing a smartphone, it stands to reason that its capital spending may come in higher than anticipated and chip away at earnings. As perfect as Amazon must be to maintain its lofty valuation, it seems the company is executing to perfection. And in terms of reported sales, there aren't many companies with its size that are producing the level of growth it has demonstrated. However, as a value investor, I have always thought that paying premium prices for stocks wasn't a good idea. I would recommend that holders of Amazon shares continue to hold the stock but not add to their positions.