Five Stocks to Rally this Week After Earnings
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sometimes, the perfect combination comes together for a company that allows for large gains following an earnings report. This is often a risky bet, but if researched correctly the risk can be worth the reward. With that in mind, I am looking at five companies announcing earnings this week that could very well rise with large gains.
Two Tech Giants to Rise!
Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) are by far the most talked about technology companies in the market. This week both companies will announce earnings -- Google on Tuesday and Apple on Wednesday -- and I believe that both will rise.
Think back to Google's last quarter, it had broken into a new range -- trading over $750 as investors expected a huge beat -- but then it missed miserably and lost $60 from its price per share. Looking back there were some positives: The company said its mobile business had reached an $8 billion per year revenue run rate and did see a 51% growth in revenue due to the Motorola acquisition. Since then the company's released new phones/tablets, new services, and has continued to maintain momentum in a new trading range.
In the last week the stock has slid almost 5% as investors prepare themselves for another disappointment. However, one funny thing about the market is that when everyone prepares for something to happen, the reverse usually occurs (think Facebook lockup expiration, Nokia, and Research in Motion). At this time there is no reason to believe there will be another disappointing quarter; however investors don't seem too confident. Therefore, with the stock being priced at $704 rather than at $755 I see little risk in the stock, and large upside potential.
It doesn't seem that anyone knows what to expect from the world's largest company. The company has lost about 30% of its value since the release of the iPhone 5, however, from what we know the phone continues to sell fast and the company's ecosystem has shown no major signs of slowing down. However, there was a report by the WSJ that orders for iPhone 5 components have been cut in half. Analysts are now expecting about 35 million iPhones for the upcoming quarter, and this has investors on the edge of their seats.
My question to investors is that considering Apple has lost almost $200 billion in value (about the size of Microsoft) isn't it fair to suggest that worse-than-expected orders are already priced into the stock? Isn't it also fair to suggest that ANY good news could lead to a massive rally? I believe the answers to both of these questions are a definite "yes." The stock is currently trading at 7.5x next year's earnings minus cash and is growing, at a worst-case scenario, by at least 15%. Therefore, the stock is ridiculously cheap. And with a potential China Mobile deal, new products, and rumors of an increased dividend, I think Apple makes a compelling buy at these levels.
Regional Banks Have Dominated; Might it Continue?
Apparently the market had it all wrong. While retail and institutional investors were buying shares of Citigroup and Bank of America over the last year, it was the smaller regional banks that were fundamentally outperforming the larger ones.
During this current earnings season, we've seen Bank of America, Citigroup, Wells Fargo, and JPMorgan all trade lower following earnings. In fact, Morgan Stanley was the only of the large banks to trade considerably higher following its earnings report. Meanwhile, almost all of the regional banks, aside from Sun Trust, have rallied, including: BB&T, Fifth Third, PNC Bank, Huntington, etc. have all beat and traded higher. Therefore, with a near 100% success rate we must entertain the idea that regional banks could perform well throughout the remainder of this earnings season.
On Tuesday, Regions Financial (NYSE: RF) and on Thursday, Popular, Inc. (NASDAQ: BPOP) will announce earnings. Much like the rest of the banking sector, these two stocks are just as fundamentally cheap as any other regional bank, and therefore present the same level of upside. Regions has been a fundamentally strong company throughout the last couple years and Popular has really begun to build momentum as of late. With that being said, these are two banks that you might want to research as a potential "buy" during this long holiday weekend.
One for the Road!
I conclude with one final stock to watch: It is not a large tech company nor is it an undervalued banking stock, but rather a company that operates in the ever-so-volatile retail space, Coach (NYSE: COH). This is a stock that is begging for a large breakout, as it recently broke out of a multi-month $56-$60 trading range. Yet the stock, now trading near $62, is still fundamentally cheap with a forward P/E ratio of 13.92 and double-digit revenue growth.
The stock has traded particularly volatile over the last year as retail sales as a whole have been volatile, and wildly unpredictable. Yet according to multiple reports, sales of luxury retail were particularly strong in 2012, and if Coach follows the trend, then it could trade significantly higher on a strong report. As a result, I would watch this stock, along with all of these selections, for potential breakout gains that could lead to a larger long-term trend during this upcoming week.
BrianNichols owns shares of Apple. The Motley Fool recommends Apple, Coach, and Google. The Motley Fool owns shares of Apple, Coach, and Google. 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!