2 Stocks to Buy and 1 to Sell This Week
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The week of Feb. 25 will be an active one. With Ben Bernanke speaking Tuesday and a flurry of statistics coming out throughout the week, we could be in for a rally or a fear induced sell-off. With this in mind, there are three companies I am looking at closely this week. Two of them should be bought ahead of earnings and one should be sold immediately. Let's take a look.
First up is Darden Restaurants (NYSE: DRI), which is holding an analyst day on Monday. Darden operates full service restaurants in the U.S. and Canada, including Red Lobster, Olive Garden, Longhorn Steakhouse, and Capital Grille. They do not report third quarter earnings until March, but they warned the market of a miss. Darden now predicts earnings between $1 and $1.02 per share, rather than the $1.12 analyst expectations. Their struggles with Olive Garden and Red Lobster continue as they have had trouble bringing in customers. A 4.5% drop in sales for the quarter is the current estimate.
Darden has come out and said the higher payroll taxes is a reason for the decreased sales. These payroll taxes, rising gas prices, and delayed tax returns have been common burdens on companies. Darden's struggles date further back than the recent tax changes, though. The increased competition in the industry, plus the increased popularity of Chipotle and Panera, have made it tough on the more casual sit down restaurants. I would sell this company ahead of the analyst day and definitely before they report earnings in March. The 4.3% dividend will not offset the drop I expect in this stock. I would look to pick up shares if it dropped much lower and yielded over 5%.
Next up is Home Depot (NYSE: HD), which reports fourth quarter earnings on Tuesday. Home Depot beat third quarter earnings expectations last November and I expect an even bigger beat this week. They are projected to report earnings of $0.64 per share, but this is much too low. I am looking for a beat along with raised guidance for 2013.
With rebuilding still going on from Hurricane Sandy and the increased sales from the huge snowstorm in the northeast, Home Depot did well in the fourth quarter. The company has sold off around 3.75% since reaching its 52 week high a few weeks ago, but this means it has plenty of room to run. Home Depot could easily hit $70 this week. Lowe's should give us a good indication of strength in this industry as they report on Monday. I am a buyer of Home Depot.
Lastly, we have Joy Global (NYSE: JOY). They are a manufacturer and servicer of mining equipment worldwide. Joy Global reports first quarter earnings on Wednesday and I expect to hear great things out of the company. They beat fourth quarter estimates by 7% and should continue the streak due to the strength of the industry.
Joy has been a hot topic as a takeover target, from General Electric being a potential buyer in 2012 to Sweden's Atlas Copco last week. The stock popped from $63 to nearly $68 on these rumors and has since come back down. They trade over 32% below their 52 week high and could easily return to those levels in 2013. Joy will give a good look into the Chinese recovery too, which could end up causing a spike in Caterpillar, a top competitor. I currently own shares in this company and am looking to add to the position if it comes down a point or two before these earnings.
These are the moves I would make this week. I am looking to pick up shares of Home Depot and I want to add to my shares of Joy Global. I do not want to short Darden, but I definitely do not want to own this troubled company. I am initiating outperform calls for Home Depot and Joy Global and an underperform call on Darden on CAPS.
JoeySolitro1 has a position in Joy Global. The Motley Fool recommends Home Depot. The Motley Fool owns shares of Darden Restaurants. 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!