Wednesday is Fed Day

7/26/15

Despite the fact that we got a lot of solid earnings reports throughout the week, the S&P was in complete sell-off mode on Thursday and Friday, led lower on sinking commodities, worries about a slowing global economy and a horrible quarter by Biogen, which sent the entire red-hot biotech sector lower. The drop in equities to end the week is a little concerning. On a technical basis, the S&P failed at a key resistance level of around 2135 and is headed towards the 200 day moving average of 2064. That’s the first level to watch this week, followed by 2050, which was the early July low. If both levels fail, then expect another 2% drop to 2010 before finding support. I have to say that there are a lot of factors in play this week, which could easily send the market lower from here.

While earnings will continue to roll in, the run on just about all commodities is leaving investors concerned about the global economic growth. Despite an oil rally early in the summer, the commodity hit another bear market on Friday, down more than 20% since the beginning of May, taking most energy related stocks down with it. Gold, silver copper, grains, and cotton are all sitting at or near a five-year low. With concerns that the Chinese economy is slowing, these commodities will all continue to move lower until evidence of stability in China begins to show. As far as market impact goes, it’s still all about energy and I’ll even throw in copper. Right now I cannot recommend buying anything in the energy sector except for the refiners, who benefit from lower oil prices, until oil finds some sort of stability. As for copper, the industrial metal is used in construction across the globe, so copper will actually give you a good read on the strength of the global economy. Those are the two commodities to pay attention to because if they continue lower, then I expect equities to move lower as well.

As far as this week goes with earnings and other events, here is what to watch for:

TUESDAY (BP, MAS, DHI, GILD, TWTR)

BP (BP) reports earnings before the bell, and is the first of the big integrated oil names to report this quarter. BP is currently yielding a roughly 6.5% dividend, which is concerning given that the company expects to earn only $2.41/share, which is LESS than their current dividend yield. The stock has actually held up pretty well when compared to Exxon, Chevron and ConocoPhillips, but as I mentioned previously, the energy sector is dead money right now.

Masco (MAS) and DR Horton (DHI) report before the open on Tuesday, and both will give a good reading on the housing market. Both stocks are doing well this year and both were sitting near 52-week highs until the end of the week, and I think both stocks will put up strong quarters. I believe the housing market is strong and you can continue to own these names, along with Home Depot (HD). If I’m wrong and both companies come up short or offer weak guidance, expect the market to sell off.

Biotech giant, Gilead Sciences (GILD), reports after the close, and investors will be on edge with this one. GILD fell sharply on Friday on the heals of Biogen’s terrible quarter, but that’s mostly because of selling of the Biotech ETF, IBB, which Gilead makes up about 10% of. The stock is already down about 10% from all-time highs hit just a couple weeks ago, and every sharp sell-off in the name has proven to be an opportunity. This time should be no different, but given the past market reaction on Gilead’s earnings, I would wait until after they report. Gilead has a tendency to report monster quarters, but similar to Apple, investors look for anything negative, which leads to the stock trading lower the following day. Since it’s a biotech company, the moves in the stock can be huge, even though the fundamentals don’t match those of most biotechs. Gilead trades at a measly 10x next year’s earnings (cheaper than Apple), pays a dividend, has a massive market cap of $165B and it’s PEG rate is a miniscule 0.50 (also less than Apple). Additionally, they have a strong drug pipeline that will aide it well into the future. The key with this quarter is going to be if management offers any clues as to future acquisitions. The company has a ton of cash, and it was an acquisition that got them their blockbuster Hep C drugs, Solvaldi and Harvoni. If the company reports another blowout quarter, but doesn’t offer any guidance on future take-outs, the stock will drop and you should buy.

Lastly on Tuesday, I will be waiting to hear from Twitter after the close. While I own it for the long-term, I don’t see any reason you need to buy it right now. The management team (or lack there of) sucks and until they put someone in the CEO position that knows how to run this company the right way, and admit that they suck, I see more downside from here. There were a lot of rumors circulating around lately about Google being interested in buying Twitter, but that’s just not going to happen anytime soon. I have no expectations for Twitter this quarter, and while I think the new management team may get a pass on Tuesday, there’s no reason to rush into buying Twitter this week.

WEDNESDAY (FB, NXPI, Fed Minutes)

Facebook reports after the close on Wednesday, and given the run it’s had since Google’s quarter, it’s hard to see the near-term upside in the stock. The last two quarters, FB has knocked the cover off the quarter, yet the stock sold off each time, this should be the same. Facebook hit a new all-time high of $99.24 early in the week, and while I think the stock goes much higher than $100, I would wait and see how it trades after the report.

NXP Semiconductors (NXPI) also reports late Wednesday night (report usually comes out around 7 or 8pm CT), and much like Skyworks Solutions, I expect another strong quarter from NXP. The problem here is that nobody cares. NXP is the biggest player in NFC (near-field communications…think ApplePay), as well as being a big part of the smart car, but as long as worries about China’s economy persist, the stock will get hammered, much like we saw on Friday. NXP is already in a bear market since hitting $114 in May, yet not a single thing has changed fundamentally, other than the stock is now a whole lot CHEAPER! It gets lumped in with all of the high-priced semiconductors stocks, yet NXP trades at just 14x 2016 earnings with a PEG ratio of 0.60, which is more favorable than Intel, Oracle, Cisco and the previously mentioned, Google. NXP is a strong buy and should be a core holding in your portfolio.

Before FB and NXPI report, the Fed will release minutes from its July meeting being held this Tuesday and Wednesday. Investors will be looking for clues as to whether or not a September rate hike is on the table. If it is, expect stocks to sell off, as the market has not priced that in. This will be the most significant event of the week, more so than any earnings report, but it will have a short-term impact, so if the S&P sells off to the 2010 level on the heels of the Fed minutes, I would be a buyer of equities. Just because the Fed begins a rate hike in September, doesn’t mean they will be raising rates every quarter. The hikes will be very slow and very the Fed will be cautious, so long-term, you could be looking at a good buying opportunity.

THURSDAY (AMGN, FEYE)

Biotech giant, Amgen, reports after the bell, and just like Gilead, has a strong pipeline and is very cheap (forward P/E of 15 and PEG of 1.45). But also like Gilead, it still falls in the biotech category, and will have a big move on earnings. Amgen is also well off its all-time high, so if you see the stock down sharply early in the week, I would buy half prior to earnings and the other half after earnings.

Also after the bell, cybersecurity firm, FireEye (FEYE) will report, and if Fortinet is any indication, FireEye should have another strong quarter. The stock was on a tear this year, along with Fortinet and Palo Alto Networks, but has since sold off, falling 15% since hitting a 52-week high in late June. A few downgrades hit the stock, not because the business has gotten worse, but because the stock was up about 80% YTD. I expect FireEye to do well again, as the entire space is red hot, and I am a buyer of FireEye into earnings.

FRIDAY (CVX, XOM)

The two largest integrated oil names in the business, Chevron (CVX) and Exxon Mobil (XOM) will report before the open on Friday. These two will give you a true indication of the energy sector. Both stocks are at multi-year lows, but both have strong balance sheets and pay good dividends. But with oil continuing to fall, the guidance that Chevron and Exxon provide on the future of the business will matter a heck of a lot more than the previous quarterly earnings. As I mentioned at the beginning, there is no reason to own these names right now, nor is there any sign that these stocks are bottoming. I would continue to stay away.

Last week I bought GoPro on the after hours earnings sell-off, and continue to believe it’s headed to $70. I also sold my entire stake in Dr. Pepper Snapple. While I don’t think you can really get hurt in DPS, I just don’t see a lot of upside right now. The carbonated beverage industry remains very challenged and I didn’t like their last quarter very much.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), ConocoPhillips (COP), Time Warner (TWX), Twitter (TWTR), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Restoration Hardware (RH), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Costco (COST), AMGEN (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), Humana (HUM), Marathon Oil (MRO), GoPro (GPRO), and long LAS VEGAS SANDS (LVS) CALLS.

Jeff Lewison

More Than Just Apple This Week

7/19/15

With the Nasdaq sitting at record highs, it’s safe to say that the theme of last week was, “expect the unexpected.” I wrote that I was not a fan of Netfilx or Google going into earnings, and while I didn’t recommend selling them, I also didn’t recommend buying them either, which meant that if you took my advice, you missed out on some of the biggest moves in those stocks ever…but nobody has a crystal ball. Google was the big surprise, blowing out earnings and revenue estimates, and while I didn’t think a 16% rally was warranted, a move to all-time highs was. And as for Netflix, if you want to own a company that continues to make little-to-no money with declining earnings, then be my guest, but that’s not for me.

As for this week, there is a massive string of big earnings reports coming up, so I have listed each stock that I am covering on each day if you would like to pick and choose.

MONDAY (HAL, SLB, IBM)

Before the open, we’ll hear from oil services giant, Halliburton (HAL), which is expected to post its worst quarter in the last five years, but that’s to be expected given the situation in the energy markets. Earnings are expected to drop 65% YoY with revenues down 27%. Last week, Schlumberger (SLB) reported better-than-expected numbers and if Halliburton can follow that up, and offer upbeat guidance, I would look for a rally in energy stocks. Either way, look for some volatility because the options market is expecting a roughly 5% move in this name.

After the close, once important tech giant, IBM will report earnings. IBM has rallied 7.5% since easily beating on earnings last quarter, but it’s sitting at a key resistance level of $172.89 (50% retracement). At this point, the stock is in no-man’s land, trading at the high-end of a range it’s been stuck in for most of the last 10 months, with support coming in at $160. IBM needs to show it can monetize its pride-and-joy, Watson, and if it can, the company could be headed higher. I actually think a lot of the negative news is priced into the stock so I would not be surprised to see a rally in this name, but I think there are better places to put your money. However, for a trade, if it pulls back to the $163 level post-earnings, I think you buy it and use $159 as your stop out.

TUESDAY (AAPL, YHOO, GPRO, MSFT, CMG, UTX, VZ, LMT)

Tech Tuesday is likely setting up to be the biggest day of earnings next week, with reports coming from Apple (AAPL), Yahoo (YHOO), GoPro (GPRO) and Microsoft (MSFT) after the close. We’re also getting Chipotle (CMG) after the close, and Lockheed Martin (LMT), United Technologies (UTX) and Verizon (VZ) before the open. Yahoo is dead money and goes where Alibaba goes, which is straight down, so I would stay away from that one. I don’t know anyone who uses Yahoo for search, so I can’t imagine they will post strong ad revenue anytime soon. Microsoft is just okay, but you’re going to have to risk about 5.5% to the downside, where $44 has been strong support, a level it’s held since gapping higher 3 months ago. Buy Lockheed Martin, but stay away from United Technologies and Verizon.

I left out Chipotle, Go Pro and Apple because those are the ones I like the most long-term and ones that will give you the biggest opportunity. Since Apple’s ridiculous quarter three months ago, the stock hit a new all-time high of $134.54, only to sell off right down to the 61.8% retracement of $119.48, where it has since rallied 8.5%. I expect Apple to do what it always does, and report huge iPhone sales, which is the key metric for them. But, analysts always find reasons to hate the quarter and I could see the stock easily selling off like it has 3 of the last 4 quarters, which will give you a chance to own it.

The stock I actually like the most this week is Go Pro. Technically, it’s built a real nice base since the beginning of the year, with strong support at $50. Fundamentally, it doesn’t have much competition, trades at just 29x forward earnings with price-to-earnings growth (PEG) rate less than Disney, Google, and Facebook, just to name a few. The stock got way ahead of itself after the IPO, just like FireEye, Mobileye, Shake Shack, and Alibaba. And much like FireEye and Mobileye, this one is ready to coming roaring back. There are a lot of reports indicating that sales of its high-end camera are beating expectations, which means that margins should continue to rise. I would be a buyer of GoPro into earnings.

Lastly is Chipotle, which hit a new 52-week low on July 6^th, which just so happened to coincide with a brilliant analyst coming out and saying Chipotle has another 30% downside. Well since then, the stock has rallied in a straight line up, gaining 11%. The stock was hammered on it’s last earnings call because same-store sales were a little lower than expected, although still growing in the low-double digits, something that any restaurant stock in the world would love to have. Management also lowered guidance, but I think they were being too cautious. I like Chipotle long-term and see the stock headed right back up to $700/share.

WEDNESDAY (FTNT, CHKP, QCOM, SNDK)

It’s a big day for cybersecurity firms, with Fortinet (FTNT) and Checkpoint (CHKP) reporting earnings. I like Fortinet a lot, but prefer Palo Alto Networks (PANW) more, followed by FireEye (FEYE), which has sold off by about 14% since hitting a new 52-week high last month. If Fortinet rallies, they all will, so take you’re pick, but any of the three are good.

Qualcomm (QCOM) and SanDisk (SNDK) also report on Wednesday and while I am not paying attention to them directly, any negativity in these names will send the entire semiconductors index even lower, which will lead to even better buying opportunities for certain stocks. The chip stocks have been getting crushed since Micron and AMD warned they would have worse-than-expected quarters, and they sank even further on worries of a slowdown in China. Any weakness in these names should be used to buy chip stocks that have nothing to do with the PC sector, such as NXP Semiconductors (NXPI), Skyworks Solutions (SWKS) and Qorvo (QRVO). These three stocks have been unfairly selling off, yet are involved in the “internet of things,” which is a fast growing market, unlike PCs. Additionally, those three are heavily reliant on Apple, while Qualcomm and SanDisk are not.

Qualcomm and SanDisk are both trading at 52-week lows, so there are not a lot of high expectations for either stock. It I had to pick one, I would choose Qualcomm to beat and rally. The stock has traded down to the $62 level a couple times and held, so if you buy Qualcomm, your risk is about $2.50 to the downside.

THURSDAY (AMZN, BMY, CAT, CELG, LUV, SBUX, SWKS, UNP)

As you can see, Thursday could lead to a lot of opportunities in different sectors, starting with Amazon (AMZN) after the bell. Amazon has been on fire lately, closing at an all-time high on Friday, and since it reported earnings 2 quarters ago, Amazon has never looked back. Like Netflix, I am hard pressed to recommend buying a stock trading at 170x next year’s earnings with a PEG rate of 29, but none of that really matters when it comes to these cult stocks like Amazon, Tesla and Netflix. If you’re already in it, then I would stay in, otherwise buy it at your own risk.  

Bristol Myers Squibb (BMY) and Celgene (CELG) report before the bell and both are “strong buys” no matter how their quarters look. Bristol Myers has been on a continuous uptrend and every pull back in the name has been an opportunity. Since early March, the stock has been trading in a $63-$69 range, but I think it’s ready to break out. I suggest buying half before the report and if it gets back down to $64, buy the other half. Celgene is no different. Although it’s a large biotech, the stock is incredibly cheap, trading at just 22x ’16 earnings with a PEG ratio of just 1.13. With their recent acquisition of Receptos, they maintain a strong drug pipeline, which will continue to send the stock higher. Celgene sold off to $106 on its last earnings report and if you sold the stock, you would have missed out on a 26% rally. Buy Celgene on any weakness.

For a good read on whether the Chinese economy is really slumping following the market sell-off, listen to what Caterpillar forecasts for the future. They are heavily levered to China, and the stock has been dropping, sitting just 5% off the multi-year lows. The company has not performed well for a while now, and I don’t see that changing, however, expectations are so low that Caterpillar actually might just surprise some people. If you are looking for a long-term holding and a play on a growing global economy, Caterpillar is a great way to do it. It has a 3.80% dividend, trades at just 17x 2016 earnings, has a strong management team and technically, the stock is sitting at major support. Since breaking above $78 in 2010, Caterpillar has traded down to $78 every single year, and held and rallied off that level each and every time. I see that trend continuing and say that CAT is a “buy.”

Transport stocks like Southwest Airlines (LUV) and Union Pacific (UNP) have been in the doghouse since last October, with the exception of a brief rally early in the year. Both of these stocks are in a major bear market but the fundamentals don’t warrant their low stock price. UNP is extremely cheap, trading at 14x ’16 EPS. $95 seems to be long-term support for the stock, so you can buy it now and only risk about 2.50%. Southwest Airlines is a different story. I felt that the airlines, namely, Southwest, Delta and JetBlue, were “strong buys” weeks ago, and while the latter two have held up well, LUV has continued to fall. But much like the rest of the space, the stock is dirt cheap and down 26% since hitting an all-time high back in late February. At the same time, oil is flat and the Dollar is stronger, which aids an airline like Southwest, which is mostly domestic. I’m sticking with my gut and say you buy Southwest Airlines.

Starbucks (SBUX) reports after the bell on Thursday, and although I believe Starbucks should be a core holding for every single portfolio, you may get a better chance to buy it after they report. The stock is up almost 40% YTD so it is priced to perfection, meaning that analysts will be looking for any reason to take profits. SBUX is really an incredible company. They have reported 5% or better same-store sales growth for the last 22 quarters, which is almost unheard of in the restaurant industry. They seemed to have mastered the Chinese market, continue to grow in Europe while other companies are struggling, and have an Apple-like following with their customer loyalty program. Having said that, the stock is getting pricey, trading near its highest P/E in years, so look for a move back to $53 and then pull the trigger.

Skyworks Solutions (SWKS) reports after the close and with the stock already down almost 9% from all-time highs, I think you can begin buying before they report. As I previously mentioned, Skyworks is involved in the “internet of things” and heavily involved in the iPhone, so if Apple reports a strong quarter, this stock will get an early boost. Like NXPI, Skyworks is very cheap, with a PEG rate of less than 1 and a P/E ratio slightly higher than Intel, which has very little growth. If you are looking for a semi-conductor stock to add to your portfolio, Skyworks is as good as any of them. 

There are a lot of earnings coming out this week and as I wrote a week ago, expectations for earnings this season are too low, and I expect a lot of upside surprises. The buy of the week could come on Tech Tuesday, not from Apple, but from GoPro.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), ConocoPhillips (COP), Time Warner (TWX), Twitter (TWTR), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Restoration Hardware (RH), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Dr. Pepper Snapple (DPS), Costco (COST), AMGEN (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), Humana (HUM), Marathon Oil (MRO), and long LAS VEGAS SANDS (LVS) CALLS.

Jeff Lewison

Big Earnings Ahead

7/12/15

It’s safe to say that volatility is back in the market place again, in a week when we saw the S&P fall almost 2% in a single session, only to rally back on Friday and close essentially flat for the week. A lot of attention moved away from Greece and on to China, where the Chinese stock markets dropped as much as 35% since the middle of June, sending US equities sharply lower on concerns that the Chinese economy will get even worse with the markets sinking. Much of the rally in US equities on Thursday and Friday were a result of the 14% rally in the Shanghai index to end the week. While it is troublesome that the Chinese markets dropped so drastically in such a short period of time, I don’t see it as a cause for concern. The Shanghai is still up 90% in the past 12 months so the only investors who got really hurt are the ones that entered the market in the last month. Additionally, people in China are very conservative, with only 20% of their net worth in equities and 50% in savings and CDs. So this notion that the Chinese economy is getting even worse just because the stock market is dropping, doesn’t make sense to me. Consumers will still spend money because they haven’t lost a lot of it. With that said, you have some great opportunities to buy stocks that have gotten hit real hard because of fears in China, namely tech stocks like Apple and the semiconductors not involved in the PC business.

Earnings season kicks into gear this week, beginning on Tuesday morning with the two bank giants, JPMorganChase and Wells Fargo. The financials need higher interest rates and over the last three months, that’s exactly what they got. We’ve also heard a lot of positive news out of the housing sector, so I expect JPM and Wells Fargo, both heavily reliant on lending, to report good quarters. For JPM, analysts are expecting a relatively flat quarter, with earnings rising just $0.03 on revenues of $24.72B. On the other hand, analysts are expecting slightly better improvement from Wells Fargo, with EPS expected to grow about 5% on revenues of $21.71B. While I own Wells Fargo, and will continue to do so into earnings, there are better places to put your money. If you’re looking to buy the banks, wait until the end of the week once the market also digests reports from Bank of America, Citibank, Goldman Sachs and Morgan Stanley.

Wednesday will be a big day for the airlines, with Delta kicking things off before the bell. This sector, other than Jetblue, has been in complete free-fall, despite oil going lower, and it could be up to Delta to get this group going again. I wrote an article a while back that the airlines were a buy on the recent dip and I continue to believe that. Oil continues to remain low, ticket prices and fees remain high and capacity isn’t stretched like many analysts believe. Delta was recently named as one of the companies that the US Justice Department is investigating for collusion to maintain high ticket prices, but in the end, I believe those allegations will be unfounded and with all of the airlines trading above where they were before this story came out, most investors believe the same thing. I think you buy the airlines this week.

Netflix will report after the close on Wednesday, just 1 day after the stock splits 7:1. I have never liked this stock and although it looks like the programming options have improved on Netflix, expectations remain incredibly high and it still trades at an extreme valuation of 220x forward earnings. Valuation has never seemed to be an issue for this stock so I don’t see that changing, but I also believe Carl Ichan knows what he’s doing with this stock, and when he sold his entire stake a few weeks ago, you should have too. I would avoid Netflix into earnings.

Two stocks that I am watching on Thursday are healthcare and tech giants, UnitedHealthGroup, and Google. Both stocks are going in completely opposite directions, with UNH trading just off all-time highs, while Google is down 6% in the last year. Google is still very cheap and has a really strong balance sheet, but the problem I have with Google is the same one that I have had for a long time; they are losing market share in the industry they dominate, while also spreading themselves thin into too many different products and ideas that they have lost focus on their core business. Google completely missed out on the social networking revolution, having lost a lot of advertising business to Facebook, and while I would like to see them buy Twitter (only for my long Twitter position), I just don’t see that happening. Buy Google at your own risk prior to earnings, but I believe you are better off waiting to see what they say first, and even then, I would prefer you buy Facebook or Twitter instead.

As for UnitedHealth, they are the largest insurer in the healthcare industry and even if the Humana/Aetna combination passes regulatory approval, they will still be the largest. The healthcare stocks do very well when the US dollar is strong, and since the announcement of Obamacare, the insurers have taken off. I expect UNH to once again impress Wall Street, sending their stock and the rest of the industry much higher. There is no question that there will be consolidation in this industry, the only question is which companies will combine and when these deals will go through. I am a buyer of UNH and rest of the industry for that matter.

Lastly, one stock that I will be paying close attention to, but doesn’t really have any bearing on the broader market, is Las Vegas Sands, which reports after the close on Wednesday. The casino stocks, which have been in free-fall due to clamp downs by the Chinese government on Macau VIPs, are starting to show signs of life on news that Macau revenues, while still sharply declining, are NOT declining as rapidly. Since bottoming on June 29^th, Las Vegas Sands is up almost 9%, trading above key technical levels. The 23.6% retracement and 100-day moving average are right around $53.50, which is a level that has been support since the stock broke above it on July 1^st. Sands is yielding a 4.50% dividend and given how badly the casino stocks have performed in the last year, I believe the bad news is already priced in, and the best thing to do is buy into earnings.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), ConocoPhillips (COP), Time Warner (TWX), Twitter (TWTR), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Restoration Hardware (RH), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Dr. Pepper Snapple (DPS), Costco (COST), AMGEN (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), and Humana (HUM).

Jeff Lewison

Earnings Season is Back

7/5/15

At the time of this writing, we still don’t know how the situation in Greece is going to play out tonight, but I am hopeful they pass a “no” vote so we end this nonsense once and for all. A vote against continued austerity measures will likely kick Greece out of the Euro and will allow markets to go back to normal after a short-term drop that will likely come. If the Greeks vote “yes,” then we’re likely in for a change in government in Greece, along with more and more back and forth between them and the IMF, which will again whiplash stocks back and forth. Either way, one thing to keep in mind is that I believe the Fed’s decision to raise rates this year will depend heavily on the outcome in Greece. If Greece gets kicked out of the Euro, I think that forces the Fed to delay any thought of a rate increase until no earlier than December. While the US economic data has been strong over the last month, which is leading to many analysts expecting the first increase to occur in September, I believe that whether the Fed wants to publicly admit it or not, they are keeping a close eye on the Greece situation and will act, or not act for that matter, accordingly.

Turning to the US, earnings season will kick off on Wednesday, starting with Alcoa (AA). The stock has become relatively insignificant when it comes to being a gauge of earnings season so I’m not paying much attention to it. Alcoa hasn’t been considered a bellwether for a number of years now and with the stock down about 30% YTD, there isn’t a whole lot to like. Aloca gets a significant chunk of their revenue overseas, and with the dollar remaining strong last quarter, I would stay away from this one.

On Thursday, PepsiCo (PEP) and Walgreens Boots Alliance (WBA) will report earnings, and I suggest using those reports to trade off their competitors. Instead of buying Walgreens, I would focus your attention on CVS, which comes with a better management team, a newly acquired Target pharmacy business, and more innovation. As for Pepsi, the entire soft drink space is challenged and Pepsi, while sporting a roughly 3% dividend, has underperformed it’s smaller counterpart, Dr. Pepper Snapple (DPS) over the last year. If I had to choose between the big three, I would choose Dr. Pepper, then Pepsi, and Coca-Cola last (I do own DPS).

There are such low hopes for earnings this quarter, much like last quarter when earnings came in much better than expected. Analysts are expecting a 4.5% drop in EPS AND revenue this quarter, much of which will be contributed to the strong dollar. As expected, energy is going to carry the biggest negative weight, so excluding energy; revenue is expected to rise a meager 1.7%. There’s no question that the dollar will continue to weigh of revenues of most international companies, but this earnings season could really separate the strong management teams from the weak. We’ve known for more than 3 months now that the dollar will likely remain strong going into years-end, so you want to invest in companies that were able to anticipate that and have come up with a solution to continue strong revenue growth. Companies were given a pass in Q1 for weak revenues caused by the strong dollar, but I’m not buying that excuse this time around. So during this earnings season, when you hear a company blame the dollar for a revenue miss, interpret that excuse as, “our company isn’t good enough to adjust to a known headwind and you should sell our stock.”

Lastly, minutes from the Fed’s June meeting will be released on Wednesday. Investors will be looking for any clues that we didn’t already hear about as to how close the Fed is to raising rates in September. They have already said that they are data dependant, but have also alluded to the fact that they are considering the global economy in their decision. I don’t see the minutes as being a significant news event this week.

All eyes will be on Greece tonight and into tomorrow. I have been saying for weeks that a Greek exit from the Euro will lead to a 3% drop, and last Monday resulted in a 2% drop after Alexis Tsipras announced a Greek vote after markets closed on June 26. I don’t think that the markets have fully priced in a “no” vote, so expect more downside if that happens. Over the next month, I continue to like the TLT as your hedge against the Greek situation.

Recent moves for my portfolio: On Wednesday, I sold off my entire holding of Lockheed Martin based solely on the technicals. Since last October, the stock has built a perfect bearish head-and-shoulders formation. I still like the stock long-term, and will be looking to buy it back at a lower level. My trade resulted in a 8.2% gain vs. a 7.6% gain for the S&P during the same time. Also on Wednesday, I bought a full position in Humana, which I felt sold off way too much for a company that you knew would eventually be taken over. Based on Thursday night’s news, that will come to fruition.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), ConocoPhillips (COP), Time Warner (TWX), Twitter (TWTR), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Restoration Hardware (RH), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Dr. Pepper Snapple (DPS), Costco (COST), AMGEN (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), and Humana (HUM).

Jeff Lewison