Take Profits in These 2 Companies Before Earnings

NEW YORK (TheStreet) -- Stocks that climb ahead of their earnings announcement often peak at earnings. These two companies are almost complete opposites -- except they both may decrease after reporting.

Walt Disney Company ( DIS) will probably beat estimates, but it's fully priced in.

Groupon ( GRPN) is cheap on a per-share basis, but can't seem to find a way to generate a profit.

Shareholders may find selling into the news is better than selling after.

DIS Chart DIS data by YCharts

Walt Disney, together with its subsidiaries, operates as an entertainment company worldwide. The company's Media Networks segment includes broadcast television network, television production and distribution, television stations, broadcast radio networks, radio stations, and publishing and digital operations.

52-Week Range: $42.84 to $63.93

Price To Book: 2.8

Strong second-quarter earnings growth is expected by Wall Street after the market closes on Tuesday. The consensus estimate is 76 cents a share, a gain of 18 cents (23.7%) from 58 cents during the corresponding quarter last year. The lowest analyst estimate this report is 69 cents per share and the highest is 82 cents per share.

I believe the earnings figure will come in towards the high side, about 80 cents to 83 cents per share. I also believe that anything less than 80 cents is not likely to please Wall Street.

The majority of analysts believe Walt Disney continues to offer a buying opportunity, with 19 of the 29 analysts covering the company giving it a buy recommendation. As of the last update I have, none of the analysts are recommending selling.

New investors from a year ago are happy, and analysts rating this company a buy have called it correctly. Disney shares are 47% higher over the last 52 weeks. Analysts are calling for a price target of $62.50.

Disney surpassed the price target about a week ago, and the Mouse may be topping out. In my weekly options newsletter I wrote that Disney call options should be shorted. I like the company and as much as a parent can enjoy standing in line all day, I even enjoyed my family Florida trips to visit. However, the chart appears overbought based on technical analysis.

Trend followers are likely to point out that the trend is higher, and they are correct that the moving averages are clearly moving from the bottom left to the upper right of the charts. Most trend followers focus on the overall trend and not pivot points. I focus on pivot points.

While I don't know Disney will top out near the earnings release, I believe the odds favor it. If Disney doesn't move lower, and it doesn't have to for call option shorts to make money, I believe the upside is limited relative to the call option premium.

In the last month alone, shares increased over 8%. If there is one thing professionals know about stocks, it's that they don't move straight up forever. If you want to buy shares, consider waiting for a pullback to reduce your risk.

If you have exposure and you want to take some off the table, consider in-the-money calls as an exit method. Option premium is typically elevated before an earnings release and you may be able to exit for a little more than an outright sale.

This stock currently has an annualized dividend of 75 cents, yielding 1.17%. The yield is not enough to be a sole reason to buy, but it's a pleasant bonus.

At the time of writing and from the latest short interest report, the short interest is minor and not a cause of distraction. The small amount of short interest is 2.4%.

DIS Revenue Quarterly Chart DIS Revenue Quarterly data by YCharts

GRPN Chart GRPN data by YCharts

Groupon operates as a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally. The company sends daily emails to its subscribers regarding discounted offers for goods and services that are targeted by location and personal preferences.

52-Week Range: $2.60 to $14.93

Price To Book: 5.2

Groupon is anticipated to give us a repeat of last year's performance in this year's first-quarter earnings after the market closes on Wednesday.

The consensus estimate is currently between a loss of 1 cent and a profit of 2 cents a share, depending on the source. In the first quarter of last year, Groupon's bottom-line per share was 2 cents. Estimates from analysts range from a low of losing 2 cents per share up to the highest estimate of a profit of 5 cents per share.

Analysts are more or less side-stepping this one like a politician dancing the Washington two-step. A hold can mean everything from "I want to rate it a sell but that wouldn't be good for business" to "I have no clue" -- 16 out of 24 analysts rate Groupon a hold. Three recommend this company as a buy and five recommend selling.

Unlike Disney, Groupon hasn't performed well for investors who bought before the second half of 2012. As a result of the stock's dismal performance, the previous CEO and founder, Andrew Mason, stepped down earlier this year. In what is one of the most memorable resignation letters I have ever read, Mason displayed a rare level of honesty and humility in the corporate world.

I find a bullish argument for Groupon elusive. While I'm not short and wouldn't short the company primarily out of takeover risk, it's anything but surprising to see short interest over 15% of the float. I am almost exclusively a short-seller, and I can say with confidence that shorts don't enjoy holding a short position with this much short interest.

In order for short-sellers to hold positions with a small-priced ticker, they require a high confidence level the company is significantly overvalued by investors.

In other words, the smartest minds are screaming at the top of their lungs that Groupon is overpriced. They could be wrong, but are usually spot on. GRPN Revenue Quarterly Chart GRPN Revenue Quarterly data by YCharts

At the time of publication the author had no position in any of the stocks mentioned.

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

More from Opinion

7 Takeaways From Google's $550-Million Investment in Alibaba Rival JD.com

7 Takeaways From Google's $550-Million Investment in Alibaba Rival JD.com

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD