Stocks to Watch for the Week of April 8, 2013

Michael Fowlkes, InvestorsObserver

Alcoa kicks off earnings season April 8

What's happening with AA: The earnings season will officially get under way on April 8 when Alcoa AA reports its second quarter earnings numbers. Analysts have forecast earnings of $0.10 per share, which would be in-line with the same period last year. Alcoa's stock has been stuck in a sideways pattern for the better part of the last year, and has lost 4.4% so far this year.

Technical analysis: AA was recently trading at $8.26, down $1.98 from its 12-month high and $0.29 above its 12-month low. Technical indicators for AA are bearish and the stock is in a weak downward trend. The stock has support above $8.00 and resistance under $8.70. Of the 15 analysts who cover the stock three rate it a "strong buy", two rate it a "buy", six rate it a "hold", and four rate it a "strong sell". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:With aluminum prices trending lower, I do not expect to see any knockout numbers from Alcoa in its quarterly report. Over the past month aluminum prices have fallen from $0.95 to $0.84 a pound, and do not appear ready to correct just yet. There are signs that things could start to improve for the aluminum industry, specifically an improved auto market. March auto sales were the strongest in the last five years, and this should help increase demand. Look for any information on demand from China, as it is expected to represent around 23% of global consumption this year.

Stock-only trade: If you're looking to establish a long stock position in AA, consider buying the stock when it is below $8.25 and sell if it falls below $7.45 or dips more than 10% or take profits if it gets to $9.50.

Option trade: If you are looking for a hedged options trade on AA, consider an October 5/7 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (20.4% annualized*) and the stock would have to fall 12.7% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the October $7 call. If AA rises just 5.9% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.

BB&T investors should get a clue from JP Morgan earnings

What's happening with BBT: The financial industry will get its first earnings report on April 12 when JP Morgan Chase JPM reports its quarterly earnings. All the major financial stocks should react to the report, including BB&T BBT. BBT stock has been in a very tight sideways pattern since the start of the year, and last month it failed to gain the Federal Reserve's approval for its capital plans. BB&T did far exceed the Fed's minimum capital requirements, but the Federal Reserve objected to certain parts of its capital plan. BB&T plans to submit a revised capital plan as soon as possible.

Technical analysis: BBT was recently trading at $30.20, down $4.17 from its 12-month high and $3.34 above its 12-month low. Technical indicators for BBT are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $29.80 and resistance under $31.75. Of the 25 analysts who cover the stock five rate it a "strong buy", one rates it a "buy", 18 rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 5 STARS "Strong Buy" ranking.

Analysts' thoughts:Despite not getting approval for its capital plan in the recent stress tests, the bank did have much better capital rations than were required, and remains in good shape. This is why we did not see a huge sell off when its future capital plans were rejected. The financial industry appears to be improving, and we expect this upcoming earnings season to be kind to the industry as a whole. BB&T is still in good shape, and we expect decent performance through the year. Over the last four quarters, its loan portfolio has grown 5.9% and total deposits are up 7.7%. Even though its current capital plans will have to be resubmitted, the company is already paying a 2.9% dividend, which is very competitive among its peers, and it is trading with a P/E of just 11.1. There is still value to be had in BBT stock.

Stock-only trade: If you're looking to establish a long stock position in BBT, consider buying the stock when it is below $30.25 and sell if it falls below $27.75 or dips more than 10% or take profits if it gets to $34.75.

Option trade: If you are looking for a hedged options trade on BBT, consider a June 23/28 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (39.7% annualized*) and the stock would have to fall 5.9% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the September $29 call. If BBT rises just 4.4% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.

Bed Bath & Beyond reports earnings April 10

What’s happening with BBBY: Bed Bath & Beyond BBBY will report its fiscal fourth quarter results on April 10. Analysts have forecast earnings of $1.68 per share, up from $1.48 during the same period last year. The company posted better than expected numbers for its third quarter, but failed to hit analyst estimates in the second quarter. Prior to its second quarter miss, the company had a streak of 15 straight quarters of better than expected EPS, and will look to start another streak on April 10.

Technical analysis: BBBY was recently trading at $63.97, down $11.87 from its 12-month high and $9.64 above its 12-month low. Technical indicators for BBBY are bullish and the stock is in a strong upward trend. The stock has support above $60. Of the 21 analysts who cover the stock 14 rate it a "strong buy", six rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:Over the last month we have seen BBBY stock break out, but it still remains 15.6% under its 52-week high, and the stock is trading with a P/E of just 14.6. There is definitely renewed interest in the stock, and plenty of upside left in its current run. Despite its misstep two quarters ago, the company has a solid history of posting better than expected earnings, and we expect to see another forecast topping quarter when it reports on April 10. Consumer confidence has been improving, and that helps specialty retailers such as Bed Bath & Beyond. The housing market is also improving, so there are more people buying goods for new homes. Research firm Oppenheimer recently reiterated its "outperform" rating on the stock. Last month, Barron's commented on the stock, noting that it believed the stock could climb as much as 25% over the remainder of the year, citing strong profit. We expect the stock to move higher after its upcoming earnings report.

Stock-only trade: If you're looking to establish a long stock position in BBBY, consider buying the stock when it is below $64.25 and sell if it falls below $57.75 or dips more than 10% or take profits if it gets to $74.

Option trade: If you are looking for a hedged options trade on BBBY, consider an August 47.50/52.50 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (26.5% annualized*) and the stock would have to fall 5.9% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the November $60 call. If BBBY rises just 8.0% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.

Zynga launches real money poker

What's happening with ZNGA: Shares of game maker Zynga ZNGA have been struggling for the last year, but enthusiasm has recently returned to the stock on news that it will begin to offer real-money gaming in the United Kingdom. Zynga stock has been stuck under $4 a share since last July, and was as low as $2.09 in November. When it announced that it was launching real money gaming in the U.K. the stock instantly shot higher, gaining 15% on that day.

Technical analysis: ZNGA was recently trading at $3.53, down $9.17 from its 12-month high and $1.44 above its 12-month low. Technical indicators for ZNGA are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $3.00. Of the 18 analysts who cover the stock one rates it a "strong buy", one rates it a "buy", 14 rate it a "hold", one rates it a "sell", and one rates it a "strong sell".

Analysts' thoughts:Online poker offers a huge opportunity for Zynga. Brian Pitz, an analyst with Jefferies believes that revenues generated from the U.K. will not be substantial, adding between 6% and 9% to its annual revenues. This is because online gambling is already legal in the U.K. and the company is entering a highly competitive market. While this may be true, the real impact will be if the company spreads its operations across Europe and eventually enters the U.S. market. I believe the U.S. government will eventually realize the potential of online poker in the U.S. and will find a way to make it legal and regulated. If Zynga can perfect its system in the U.K. it will be able to expand in other countries, including the U.S. eventually, and then significant money will start to roll in. The short-term effect of opening operations in the U.K. may not make the substantial financial impact that Zynga needs, but it opens big doors. I would consider it a positive factor for long term investors that are willing to patiently hang on to their current holdings while the gambling revenues increase.

Stock-only trade: With the stock just posting a 15% one-day jump, we would rather wait until we see where trading settles down before we set up any new stock-only trade on the stock.

Option trade: If you are looking for a hedged options trade on ZNGA, consider a June 1/3 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (50.7% annualized*) and the stock would have to fall 9.9% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the June $2.50 call. If ZNGA rises just 7.3% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.

Gun control debate continues to wage

What's happening with RGR: With the sharp increase of public awareness of mass shootings in recent years, gun control has been an ongoing debate in Washington. When the Senate returns from its Easter holiday, gun control is on the agenda, with President Obama pushing for tougher background checks for people wanting to buy firearms. Sturm, Ruger & Co. RGR got off to a strong start to the year, but recent selling pressure has erased much of its gains from earlier in the year. Year to date the stock is currently up 4.6%.

Technical analysis: RGR was recently trading at $47.11, down $13.00 from its 12-month high and $12.89 above its 12-month low. Technical indicators for RGR are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $45. Of the two analysts who cover the stock one rates it a "hold", and one rates it a "sell.

Analysts' thoughts:The gun control debate has been raging for years, and in all likelihood will continue to last for years to come. Even in the current debate, there is no one suggesting that guns should be taken off the street, only that stricter background checks should be required. If anything, all of the gun control discussion will actually lead to higher gun sales as people growing increasingly worried that the right to purchase a new gun will be removed in the future. Sturm, Ruger & Co. has had its ups and downs over the last 18 months, but the overall trend is positive, and the stock is up 105% in the past two years. I do not expect to see any selling pressure as a result of the current gun control debate in Washington.

Stock-only trade: If you're looking to establish a long stock position in RGR, consider buying the stock when it is below $47 and sell if it falls below $43.25 or dips more than 10% or take profits if it gets to $54.

Option trade: If you are looking for a hedged options trade on RGR, consider a July 35.50/40.50 bull-put credit spread for a $1 credit. That's a potential 25% return (85.3% annualized*) and the stock would have to fall 12% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the May $45 call. If RGR rises just 1% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.

*Annualized returns provided for comparison purposes only

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At the time of writing, Mr. Fowlkes has a long position in ZNGA and does not have direct ownership in any of the other stocks mentioned.