5 Hated Earnings Stocks You Should Love

 

 DELAFIELD, Wis. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

Pier 1 Imports

My first earnings short-squeeze trade idea is decorative home furnishings retailer Pier 1 Imports (PIR) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pier 1 Imports to report revenue of $426.30 million on earnings of 14 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is notable at 6.4%. That means that out of the 90.97 million shares in the tradable float, 5.86 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of PIR could easily rip sharply higher post-earnings as the bears move to get out of some of their positions.

From a technical perspective, PIR is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has started to form a major bottoming chart pattern over the last two months and change, with shares finding buying interest each time it has pulled back just below $15 a share. Shares of PIR are now starting to spike higher off those support levels and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're bullish on PIR, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $15.42 a share to some more key near-term resistance levels at $16 to $16.48 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.98 million shares. If that breakout begins post-earnings, then PIR will set up to re-fill some of its previous gap-down-day zone from June that started at $18.38 a share. If that gap gets filled with volume, then PIR can easily tag $20 to $22 a share.

I would simply avoid PIR or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $14.96 to its 52-week low of $14.78 a share with high volume. If we get that move, then PIR will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $13 to $12 a share.

Lennar

Another potential earnings short-squeeze play is homebuilding player Lennar (LEN) , which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Lennar to report revenue $1.96 billion on earnings of 67 cents per share.

The current short interest as a percentage of the float for Lennar is very high at 14.3%. That means that out of the 178.16 million shares in the tradable float, 25.50 million shares are sold short by the bears. If this company can produce the results the bulls are looking for, then shares of LEN could easily explode sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, LEN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month and change, with shares moving higher from its low of $35.74 to its recent high of $39.68 a share. During that uptrend, shares of LEN have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of LEN within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on LEN, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $39.68 to $41 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.82 million shares. If that breakout kicks off post-earnings, then LEN will set up to re-test or possibly take out its next major overhead resistance levels at $42.63 to its 52-week high at $44.40 a share. Any high-volume move above those levels will then give LEN a chance to tag or trend north of $50 a share.

I would simply avoid LEN or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $38.54 a share and then below more key support at $38 a share with high volume. If we get that move, then LEN will set up to re-test or possibly take out its next major support levels at $35.74 to $32.05 a share, or even $30.77 a share.

Cracker Barrel Oil Country Store

Another potential earnings short-squeeze candidate is full-service restaurant operator Cracker Barrel Old Country Store (CBRL) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Cracker Barrel Old Country Store to report revenue of $685.91 million on earnings of $1.56 per share.

The current short interest as a percentage of the float for Cracker Barrel Old Country Store is notable at 7.9%. That means that out of the 18.08 million shares in the tradable float, 1.43 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.5%, or by 74,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of CBRL could easily spike sharply higher post-earnings as the shorts move to cover some of their positions.

From a technical perspective, CBRL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last month and change, with shares moving higher from its low of $96.01 to its recent high of $104.52 a share. During that uptrend, shares of CBRL have been consistently making higher lows and higher highs, which is bullish technical price action. That strong uptrend has now pushed shares of CBRL within range of triggering a big breakout trade post-earnings.

If you're bullish on CBRL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $104.52 to $110.84 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 151,062 shares. If that breakout starts post-earnings, then CBRL will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $118.63 a share. Any high-volume move above that level will then give CBRL a chance to trend north of $120 a share.

I would avoid CBRL or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $101 a share to its 200-day moving average of $99.11 a share with high volume. If we get that move, then CBRL will set up to re-test or possibly take out its next major support levels at $96.01 to $94 a share, or even $92 a share.

United Natural Foods

Another earnings short-squeeze prospect is natural, organic and specialty foods and non-food products distributor United Natural Foods (UNFI) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect United Natural Foods to report revenue of $1.73 billion on earnings of 65 cents per share.

The current short interest as a percentage of the float for United Natural Foods is pretty high at 9.2%. That means that out of the 47.58 million shares in the tradable float, 4.37 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.5%, or by 379,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of UNFI could easily rip sharply higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, UNFI is currently trending below its 200-day moving average and just above its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last month and change, with shares moving higher from its low of $58.04 to its recent high of $65.84 a share. During that uptrend, shares of UNFI have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of UNFI within range of triggering a near-term breakout trade post-earnings.

If you're bullish on UNFI, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $65.84 to $67.11 a share and then above its 200-day moving average of $67.66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 429,884 shares. If that breakout develops post-earnings, then UNFI will set up to re-test or possibly take out its next major overhead resistance levels $69.85 to $70.46 a share. Any high-volume move above those levels will then give UNFI a chance to tag its next major overhead resistance levels at $73 to $76 a share.

I would simply avoid UNFI or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 50-day moving average of $62.67 a share with high volume. If we get that move, then UNFI will set up to re-test or possibly take out its next major support level at its 52-week low of $58.04 a share. Any high-volume move below that level will then give UNFI a chance to tag its next major support levels at $55 to $50 a share.

Apogee Enterprises

My final earnings short-squeeze play is glass solutions for enclosing commercial buildings and framing player Apogee Enterprises (APOG) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Apogee Enterprises to report revenue of $217.88 million on earnings of 34 cents per share.

The current short interest as a percentage of the float for Apogee Enterprises is notable at 4.7%. That means that out of the 28.26 million shares in the tradable float, 1.34 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings could easily spark a large short-covering rally for shares of APOG post-earnings as the bears jump to cover some of their positions.

From a technical perspective, APOG is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last four months, with shares moving higher from its low of $28.11 to its recent high of $37.19 a share. During that uptrend, shares of APOG have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of APOG within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on APOG, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $37.19 to $37.37 a share and then above its 52-week high at $37.73 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 130,052 shares. If that breakout materializes post-earnings, then APOG will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $50 to $55 a share.

I would avoid APOG or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 50-day at $34.49 and its 200-day at $33.27 a share with high volume. If we get that move, then APOG will set up to re-test or possibly take out its next major support levels at $32.08 to $31 a share, or even $29 to $28 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short-Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

 

 

 

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

More from Investing

10 Key Takeaways From Google's Solid Earnings Report

10 Key Takeaways From Google's Solid Earnings Report

Amazon Is as Well-Positioned as Anyone to Create a Popular Home Robot

Amazon Is as Well-Positioned as Anyone to Create a Popular Home Robot

Bitcoin Today: Prices Flirt With $9,000 After Weekend Boom

Bitcoin Today: Prices Flirt With $9,000 After Weekend Boom

Tech Stocks Have You Baffled? Educate Yourself in Some Portfolio Diversification

Tech Stocks Have You Baffled? Educate Yourself in Some Portfolio Diversification

Halliburton Rises Slightly After Revenue Jump

Halliburton Rises Slightly After Revenue Jump