Four 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.
Last year, Q1, I wrote a series of articles over a five-week period where I picked individual stocks to buy before earnings, and invested my own money to track the progress. The series itself was fun, educational, rewarding, and has earned me countless emails over the last six months requesting that I begin the series once again. For this upcoming week, I saw a few opportunities that might be worth exploring; therefore I decided to write this article with four stocks that might be worth a buy before earnings.
Seagate Technologies (NASDAQ: STX)
My first pick for this upcoming week is Seagate Technologies. Shares of the hard disk drive maker have been quite volatile over the last year despite currently trading near all-time highs. The company will report on Monday and is expected to post an EPS of $1.28. I believe there are many clues that the company might exceed its own revised guidance and issue higher guidance for this current quarter.
Back on Jan. 8 Seagate disclosed that it expects revenue of "at least" $3.6 billion, $100 million better than prior guidance. As you can see, I put "at least" in quotes because this implies that revenue could actually be better than forecasted. Last week we saw incredibly strong earnings from competitor Western Digital and then Microsoft posted earnings that were better than consensus.
The good thing about Seagate ahead of earnings is that the stock is cheap, with a P/E ratio under 5.0, and the company has already increased its dividend by 19% and bought back 20.5 million shares in the quarter. To me, this indicates that the company is quite bullish, and I wouldn't be surprised to see the stock rally on Tuesday with expectations being so low and all indications suggesting a strong performance.
Amazon (NASDAQ: AMZN)
While investing in a company such as Amazon goes against everything I believe in, I also must acknowledge that it's presenting a strong likelihood for gains when it reports earnings on Tuesday. The stock rallied on Friday by 3.79% to reach new all-time highs as investors anticipate strong holiday sales. The company had previously guided for sales between $20.25 billion and $22.75 billion, but according to Cantor Fitzgerald, the market is expecting sales to be $22.30 billion, or a 30% gain year-over-year.
First, all data from similar companies such as eBay and even overstock.com indicate that online holiday sales were strong. Second, data from retail checks done at the end of last year indicate that sales were strong. Lastly, the performance of the stock prior to earnings indicates that if the company beats that the stock should rise. Therefore, this is simply not a case of a stock that has already priced in earnings, this is a stock that is breaking out and could rally higher.
The value investor, such as myself, might say that it's a value trap because of its valuation. However, compared to eBay, Amazon is actually valued 40% cheaper, with a price/sales ratio of 2.10 compared to eBay's 5.08. Therefore, Amazon really isn't too expensive, and if revenue is over $22.3 billion, then expect a 3%-5% move higher.
C.H. Robinson Worldwide (NASDAQ: CHRW)
In case you've been under a rock for the last two months, the transportation sector has traded to new highs and the Dow transports are at all-time highs. In the process, transport stocks have been golden in terms of performance, most notably Swift Transportation and its 32% return during the last two days of the week. Therefore, because of strong sector performance, including an increase in manufacturing and shipping, I think that C.H. Robinson Worldwide presents both the value and potential to trade considerably higher.
The company is a third-party global logistics company, and has performed quite well over the last two years. It's currently trading at about 1x sales and should benefit from a strong performing sector. Therefore, watch CHRW on Wednesday, it's expected to post an EPS of $0.70.
Facebook (NASDAQ: FB)
I've gone back-and-forth on Facebook, saying to sell above $32, buy below $23, and hold in between. Therefore, at $31.54 it's at a crucial point -- a little too expensive for my blood with a price/sales of 14.53, but on the verge of breaking out to trade higher. So although I think it's too expensive, I still think it will trade higher after earnings on Tuesday.
There has been a lot of data about Facebook over the last three months: But with the company finishing its social graph, seeing usage on mobile rise, and effectively monetizing ads on both mobile and PCs, along with offering new services, I think a beat is in store. Supposedly, checks indicate revenue between $780 million and $800 million for the quarter, while expectations remain at $771 million for North America. Of course this is a high-risk trade, but with all things considered, I think there are just enough catalysts and excitement surrounding its future to push the stock to a new level.
Over the years I have talked and have written in extreme detail about the psychological impact of earnings, and how investors can use the information to make better investment decisions and position themselves to make even more money. The four stocks above I think will rise. Each mimics certain tendencies of momentum that we have seen to-date during this earnings season, but of course, there are no guarantees. Therefore, be sure to properly assess your portfolio, your risk, and the opportunity before making any decisions on an investment before a company reports its quarterly results.
BrianNichols owns shares of STX, AMZN, FB. The Motley Fool recommends Amazon.com and Facebook. The Motley Fool owns shares of Amazon.com. 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!