How to Play the Fundamental Movers of Jan. 10?

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Earnings can dictate the direction of a stock for an entire quarter, because after all, it's earnings and fundamentals that determine the long-term trend of a company’s worth. So far, in the first week of earnings season, we have seen several pleasant surprises. And in this article, I am looking at the biggest earning related movers, and how to play the news.

Shares of Molycorp (NYSE: MCP) slipped lower by more than 20% after the company guided lower-than-expected cash-flow for 2013 due to pricing pressure in the rare earth industry. The company also announced that it’s evaluating its capital needs for the year, which implies that the company will need financing. This is a stock that keeps falling as the pricing for rare earth shows no apparent bottom to its free-fall. Therefore, despite its 68% loss, I would not touch this stock, not until some progress is identified.

Urban Outfitters (NASDAQ: URBN) proved itself to be the king of the teen retail stores, as it rallied more than 4% while competitors Aeropostale and American Eagle fell lower after announcing holiday sales. According to Urban Outfitters, its sales increased 15%, which far exceeds the industry’s growth. Furthermore, the company’s gross margins are at an all-time high, along with its stock, which further solidifies its position as the top teen retailer due to the trend of price cuts to boost sales.

At this moment, it looks as though Urban Outfitters has both demand and pricing power, along with value in its stock. The stock is currently trading with a price/sales of 2.23 and a forward P/E ratio of 21.77. Therefore, it’s not too expensive, and might be a good investment, even at all-time highs.

It’s never fun to admit that you’re wrong, but that’s exactly what I am, because I said that Nokia’s (NYSE: NOK) rally would end badly due to its Lumia 920 phones being a supply issue rather than a demand surge. I didn’t think the craze for the Lumia 920 was real, but come to find out, the company’s selling quite a few phones -- 4.4 million Lumia phones in Q3 to be exact.

The stock rallied almost 20% on Thursday thanks to its Q4 guidance and strong preliminary results for its last quarter. Throughout Nokia’s several-month rally I have been particularly bearish, saying that it was only due to speculation. However, this guidance provides some substance, as 4.4 million of its 6.6 million smartphone devices sold were Lumias. I think this is a good sign and considering Nokia is still trading with a price/sales of 0.33, I think there still could be great upside.

It looks as though consumers abandoned much of the high-end retail stores over the holiday season in favor of discounts. We can find proof in the guidance of Tiffany & Co. (NYSE: TIF), a stock that fell 5% after weak guidance. The company said that holiday sales grew 4% to $992 million, which includes a 13% rise in the Asia-Pacific region. This means that sales in the U.S. were far worse than the 4% that it reported, which could indicate great trouble for the company ahead. The stock is currently trading with average or fair-value metrics, but the company expects EPS at the low-end of prior guidance, meaning its discounting and sales are still weak. Therefore, I’d avoid this stock for now.

These four companies above are giving you a good indication of what to expect in the coming months, and each company’s trend is consistent from what we’ve seen from each respective industry. In a slow-growing economy, I would take the information above, the guidance, apply it to the valuations of each company, and determine if any might be presenting value. Overall, it’s a fragile economy, a time where the strong can be easily identified. 


BrianNichols has no position in any stocks mentioned. The Motley Fool owns shares of Tiffany & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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