This Week: Three Stocks to Move the Market

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Equity markets remain in an upward trend as investors approach the halfway point for 2013. Discussions remain centered on the NSA surveillance, with public companies such as Apple, Facebook, and Microsoft revealing the number of requests received from local, state, and federal agencies.

The Federal Reserve is also hosting a two-day policy meeting on Tuesday, June 18 and Wednesday, June 19. Investors are focused on the sustainability of the Fed’s quantitative easing programs and when the central bank may decide to raise interest rates from near-zero levels, a position the bank has held since December 2008.

Historically, the stock market has benefitted in times of normalized interest rates. Bulls believe the economy can expand on its own and asset prices can recover based on improving data. Bears stand in contrast, citing the weakest economic recovery since World War II and large fiscal deficits.

I remain focused on identifying company-specific stories that are likely to impact your portfolio. Here are three companies I’m watching this week, as well as recent events that may affect the upcoming reports:

Shipping giant
Wednesday, June 19 before market open; EPS $1.96 / Revenue $11.44B

In April, FedEx (NYSE: FDX) announced it won the full contract from the U.S. Postal Service for transportation of Express Mail and Priority Mail between airports for the next 7 years. While FedEx has maintained a long relationship with USPS, news of a 100% award came as a surprise to the market.

Analysts had expected the Postal Service to split the contract more evenly between FedEx and larger rival UPS. The business is estimated to be worth $10.5 billion and helps FedEx maintain package volume.

Ahead of Wednesday’s earnings release, numerous Wall Street firms have stated FedEx’s 2014 guidance remains too high. New York-based Citigroup lowered its full year estimates for 2014 to $7.10 from a previous $7.50. Other firms believe that FedEx could lower guidance to between $6.75 – $7.00.

The average estimate for 2014 currently stands at $7.36, indicating there’s further room for downward revision. FedEx is focused on restructuring its Express unit by reducing costs as a result of lackluster demand, particularly from international customers.

Long-term investors may find an attractive entry point in FedEx if management provides an “expectations reset” on Wednesday’s conference call. I expect to see a temporary sell-off following the report.

Grocery store leader
Thursday, June 20 before market open; EPS $0.88 / Revenue $30.2B

The Cincinnati, OH headquartered Kroger (NYSE: KR) is a leader in the competitive high volume, low margin grocery business. In recent years, Kroger has withstood the entrance of non-traditional grocery retailers such as Dollar General and Target and increased its market share in the face of these competitors.

Kroger is widely-considered to be the No. 1 grocery chain, with 2013 revenue expected to reach nearly $100 billion. Shares have risen a massive 35% this year heading into first quarter earnings, compared to a 15% return for the broader S&P 500 index.

On a fundamental basis, I believe significant gains can still be made for long-term investors. Kroger has achieved success by investing in price and offering the best in-store experience for customers. However, traditional grocers still maintain greater than 50% market share in Kroger’s end markets, indicating the grocery giant could make further in-roads in the years to come.

Ahead of Thursday’s earnings report, analysts at Cleveland Research Company upgraded Kroger to a “buy” rating. The investment firm believes that Kroger’s growing scale will give it the upper hand with its supplier base. Kroger consistently generates an above-average return on equity, a rarity in the food and grocery industry.

In addition to upcoming earnings, Kroger is hosting its annual meeting on June 27.

Embattled drugstore chain
Thursday, June 20 before market open; EPS $0.09 / Revenue $6.27B

Retail drugstore chain Rite-Aid (NYSE: RAD) is struggling to compete in a world where larger rivals Walgreen and CVS achieve greater economies of scale.

The company has reported successive decreases in same-store sales so far this year. March, April, and May sales have fallen 2%, 4%, and 1.5% respectively at a time when pharmacy customers are filling their prescriptions elsewhere.

In April, I wrote positively on rival Walgreen following its 10-year contract agreement with drug supplier AmerisourceBergen. The deal is likely to transform the pharmaceutical industry supply chain, making it difficult for Rite-Aid to compete on a similar scale. I believe Rite-Aid will be forced to reach a new agreement with suppliers and form its own alliance.

While I believe Rite-Aid is non-investable for the long-term, the company has several near-term catalysts which could propel shares higher. First, management announced a debt refinancing on June 7 which extends the debt maturity and lowers interest expense. Second, the company raised the lower end of its earnings guidance based on strong generic drug sales.

I remain cautious on Rite-Aid for the long-term, but shares could rally following Thursday’s earnings report.

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John Macris has no position in any stocks mentioned. The Motley Fool recommends FedEx. 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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