Stocks to Watch for the Week of June 3, 2013

Michael Fowlkes, InvestorsObserver

May auto and truck sales due June 4
What's happening with GM: On June 4, the May results for motor vehicles sales will be announced. The auto market has been rebounding, and a strong showing for the month of May will reinforce the enthusiasm that investors have towards the industry. General Motors GM has been a strong performer over the last year, with the stock up 19.5% year-to-date, and is currently trading just shy of its 52-week high.

Technical analysis: GM was recently trading at $34.05, just $0.25 under its 12-month high and $15.33 above its 12-month low. Technical indicators for GM are bullish and the stock is in a strong upward trend. The stock has support above $32.00. Of the 15 analysts who cover the stock 10 rate it a "strong buy", two rate it a "buy", and three rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:The auto industry is expected to be strong through the remainder of the year, however Europe remains a problem. In April, General Motors sales rose in the U.S. and were much higher in China, but Europe was disappointing. I expect that May sales will continue to point to a strong market for GM in both the U.S. and China, but if we see a worsening in the situation in Europe, the stock's recent gains could begin to stall. U.S. auto sales are expected to rise 8% during the month of May, so we will be paying close attention to the report to see just how accurate that forecast is.

Stock-only trade: If you're looking to establish a long stock position in GM, consider buying the stock under $33.50, and sell if it falls below $30 or take profits if it gets to $38.50.

Option trade: If you are looking for a hedged options trade on GM, consider a July 28/31 bull-put credit spread for a 30-cent credit. That's a potential 11.1% return (79.5% annualized*) and the stock would have to fall 8.1% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $28 call. If GM rises just 6.5% 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.

Figures for April new construction spending due June 3
What's happening with CAT: On June 3, the market will get data on the dollar value of new construction activity in April. The report includes spending on residential, non-residential and public projects. Caterpillar CAT has been struggling this year, but a positive reading on April construction spending could help turn things around. The stock got off to a strong start in 2013, but has been trending lower over the last few months since hitting its 52-week high at the beginning of February. Over the last month we have seen a bit of strength return to the stock, but it still remains down 2.9% year-to-date.

Technical analysis: CAT was recently trading at $86.49, down $13.21 from its 12-month high and $8.24 above its 12-month low. Technical indicators for CAT are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $84.50 and resistance below $88.00. Of the 20 analysts who cover the stock 11 rate it a "strong buy", one rates it a "buy", and eight rate it a "hold". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:There is no questioning that Caterpillar has run into trouble. The mining industry has been weak, and this has put a lot of pressure on Caterpillar. What the company has going for it is increased construction equipment production. The global economy remains shaky, but has been improving, and this should translate to higher construction spending by nations, and help improve Caterpillar's bottom line. With the recent selling in the stock, it is currently looking like a value play with a P/E of just 11.6, so a positive report on April construction spending could result in a nice jump in the stock

Stock-only trade: If you're looking to establish a long stock position in CAT, consider buying the stock under $86.50, and sell if it falls below $80 or take profits if it gets to $99.

Option trade: If you are looking for a hedged options trade on CAT, consider a July 75/77.50 bull-put credit spread for a 25-cent credit. That's a potential 11.1% return (79.5% annualized*) and the stock would have to fall 10.1% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $80 call. If CAT rises just 4.8% 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.

Dollar General reports first quarter results June 4
What's happening with DG: Discount retailer Dollar General DG will report its first quarter results before the market opens on June 4. Going into the company's quarterly report, analysts have forecast earnings of $0.71 per share. During the same period last year the company had earnings of $0.63. After a rocky latter part of 2012, the stock has been extremely strong thus far in 2013, trading up 22.3% year to date.

Technical analysis: DG was recently trading at $53.93, down $2.11 from its 12-month high and $14.20 above its 12-month low. Technical indicators for DG are bullish and the stock is in a strong upward trend. The stock has support above $52.00. Of the 18 analysts who cover the stock 13 rate it a "strong buy", and five rate it a "hold". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:Dollar General has posted better than expected earnings for the last seven quarters in a row, and I see little reason to expect that streak to be broken. The recent recession created a more cost-conscious consumer which has continued to shop at deep discounters such as Dollar General even as the economy has improved. Consumer confidence has been on the rise, and I believe that this will translate to another strong quarter for Dollar General.

Stock-only trade: If you're looking to establish a long stock position in DG, consider buying the stock under $53.50, and sell if it falls below $50 or take profits if it gets to $61.50.

Option trade: If you are looking for a hedged options trade on DG, consider an August 45/49 bull-put credit spread for a 45-cent credit. That's a potential 12.7% return (58.6% annualized*) and the stock would have to fall 8.3% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $49 call. If DG rises just 4.9% 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.

J.M. Smucker reports fiscal fourth quarter results June 6
What's happening with SJM: J.M. Smucker SJM will report its fiscal Q4 results on June 6. Headed into the quarterly report, analysts have forecast earnings of $1.15 per share, up from $1.10 during the same period last year. Over the last two years, the company has been in a steady upwards trend, having gained 20.7% year-to-date.

Technical analysis: SJM was recently trading at $103.02, down $2.16 from its 12-month high and $29.82 above its 12-month low. Technical indicators for SJM are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $102.00. Of the 14 analysts who cover the stock four rate it a "strong buy", two rate it a "buy", and eight rate it a "hold". The stock receives Standard and Poor's 5 STARS "Strong Buy" ranking.

Analysts' thoughts:Over the last year, the company has posted better than expected earnings three times, and earnings that were in-line with analyst estimates once. Smucker has progressed from a company that makes fruit spreads and peanut butter to a highly diversified food products business. Recently there has been a growing appetite by consumers for individual "K-cups" coffee makers, and Smucker is one of the largest producers of the "K-cups". The company sells its coffee products under the Folgers brand, and has partnered with Green Mountain Coffee Roasters (GMCR) since 2010, allowing Green Mountain to manufacture "K-cups" with Smucker's coffee brands. In fact, the company's main revenue source has become coffee, accounting for 42% of its total revenues. Because of its wide diversification across many food segments, and its highly profitable coffee business, I expect to see ongoing strength in Smucker stock.

Stock-only trade: If you're looking to establish a long stock position in SJM, consider buying the stock under $103, and sell if it falls below $92 or take profits if it gets to $118.

Option trade: If you are looking for a hedged options trade on SJM, consider a July 90/95 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (62.2% annualized*) and the stock would have to fall 7.4% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $100 call. If SJM rises just 4.1% 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.

Samsung Galaxy S4 flies off the shelves
What's happening with MXIM: During the last week of April, Samsung's new Galaxy S4 went on sale in 155 different countries, across 327 different networks, and so far it appears to be a big seller. At stores where the phone is being sold, 57% have reported that it is has already become their best selling device. Maxim Integrated Products MXIM is a supplier for Samsung, so it should benefit as well. The stock has had a volatile year, but has managed to trade up 2.4% year-to-date.

Technical analysis: MXIM was recently trading at $29.36, down $4.31 from its 12-month high and $5.81 above its 12-month low. Technical indicators for MXIM are bearish and the stock is in a weak downward trend. The stock has resistance below $30.00. Of the 20 analysts who cover the stock eight rate it a "strong buy", four rate it a "buy", and eight rate it a "strong sell". The stock receives Standard and Poor's 2 STARS "Sell" ranking.

Analysts' thoughts:There were at one point concerns that Samsung would stop using Maxim as a vendor, but that did not turn out to be the case. While the overall mobile market is entering saturation, Samsung is one of the only companies that is gaining market share, so that should definitely work in Maxim's favor going forward. Maxim does have a big exposure to Samsung, but with the company retaining its vendor status with the company the future remains bright for the company.

Stock-only trade: If you're looking to establish a long stock position in MXIM, consider buying the stock under $29.50 and sell if the stock drops under $27.00 or take profits if it gets to $33.00.

Option trade: If you are looking for a hedged options trade on MXIM, consider an August 22/26 bull-put credit spread for a 35-cent credit. That's a potential 9.6% return (43.8% annualized*) and the stock would have to fall 10.3% to cause a problem.

Speculative option-only trade: We do not want to set up an option-only trade at the current time on MXIM. We believe the stock could be close to correcting so we would not want a bearish trade, but until it does turn higher we would not want to make a speculative call-only trade either.

*Annualized returns provided for comparison purposes only

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