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 6th,
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
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