Tuesday's Post-Earning Movers: Are These Worth Buying?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Earnings and earning-related news is the number one catalyst for stock movement. A strong quarter can dictate the direction of a stock for the following three months as can a bad quarter; in the past I have written in detail about such subjects, a domino effect following a strong or bad quarter. In this piece I am looking at the early performance of Tuesday’s top movers following earnings. Then I am trying to determine whether or not the moves are warranted and if future gains are present.

Read Part 1 by clicking here

Restaurant Stock on the Rise

Cracker Barrel Old Country Store (NASDAQ: CBRL) shot higher on Tuesday after the restaurant posted earnings that far exceeded expectations. The company posted an EPS of $1.43, which was $0.18 better than the consensus, and also posted revenue growth of 4.40%. More importantly, the company saw a 3.3% rise in same store sales and 3.3% higher traffic to complement a 2.6% boost to average ticket price.

Cracker Barrel is one of the more under-the-radar restaurant stocks in the market, yet pays a dividend of 2.75% and has increased its dividend by almost 200% over the last five years, while returning gains of 123% during the same period. Therefore, this has been a solid stock, and yet it’s still cheap. The company has great margins, great returns on equity, and a forward P/E ratio of just 13.37 to go along with a price/sales of 0.61. As a result, I’d buy this stock!

Stock Trades Lower After Huge Miss

Titan International (NYSE: TWI) traded lower by 15.18% on Tuesday, but investors should feel lucky -- it could have been worse. The company was expected to post earnings of $0.47 yet posted a loss of $0.07. This loss was attributed to a large tax provision, slowdown in Europe, and extra costs associated an earthquake in Italy. In addition to the large bottom line miss, the company also missed on the top line, by $66.48 million with its revenue of $493.6 million.

When you look at Titan International’s stock, it looks undervalued. The company pays a solid tax rate, has good returns from its investments, and trades with a P/E ratio of just 7.87. However, the company’s cash flow is bothersome, and the problems noted in its earnings call seem as though they could become lingering. As a result, I wouldn’t feel too comfortable with an investment in this company, not just yet.

Solar gets off to a Bad Start

Solar is a very fragile space, and over the last few months it has seen large gains thanks to a number of economic catalysts. However, on Tuesday shares of Trina Solar Limited (NYSE: TSL) traded lower by almost 5% following a mixed earnings report. The company missed on the bottom line by a wide margin yet beat by a wide margin on the top line.

When it comes to earnings, the top and bottom line is what typically creates a market response. However, it’s the numbers and details within the report that are most important. Trina beat Q4 module shipments, saw better gross margins over the previous quarter, had a 19% decline in Opex, and raised its module shipments guidance for both Q1 and for 2013. Now, I am not saying that Trina is a “Buy,” but it might be worth watching, and could make a good speculative investment in your portfolio.

Online Growth Boosts this Undervalued Retailer

While The Home Depot stole the show with its big quarterly results, Macy’s (NYSE: M) was putting together a strong quarter of its own, and then traded higher by 2.78%. The company beat on both the top and bottom line and saw comparable store sales grow 3.9%. The company did see its gross margins slip, however it was due to the closing of stores.

Perhaps the biggest win for the company was its online sales, which grew 47.7% in the quarter. Macy’s continues to be one of the better retail stores, and has significantly underperformed its growth over the last two years. Therefore, with a price/sales of 0.56 and a forward P/E ratio of 10.39 I’d say buy and hold this stock.

Conclusion

In my book, “Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino), with one scenario being earnings. For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain.

Investors need to avoid this behavior after earnings, and look not at the performance of the stock but rather the significance of the news. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns. 


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Cracker Barrel Old Country Store. 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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