Stocks to Watch for the Week of March 18, 2013

Michael Fowlkes, InvestorsObserver

 

Google mini-options begin trading on March 18

What's happening with GOOG: Starting on March 18, the Chicago Board Options Exchange will start offering mini-options on five securities, including Google GOOG.  While standard options contracts are for 100 shares of the underlying stock, mini-options contracts will only be for 10 shares. The purpose of these smaller options is to make the cost of a contract less expensive for a high-priced stock. Other equities that will begin trading mini options include Apple AAPL, Amazon.com AMZN, the SPDR S&P 500 ETF (SPY), and SPDR Gold Shares (GLD). Google stock has been in a strong upward trend since November gaining 18% in just four months.

 

Technical analysis: GOOG was recently trading at $825.31, down $18.69 from its 12-month high and $268.79 above its 12-month low. Technical indicators for GOOG are bullish and the stock is in a strong upward trend. The stock has recently seen resistance below $830.50. Of the 30 analysts who cover the stock 20 rate it a "strong buy", three rate it a "buy", and seven rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

 

Analysts' thoughts: While we expect the advent of mini options on Google will make it easier for small retail clients to trade Google options, the impact on the stock will be minimal. Instead of buying a contract on 100 shares, each contract will be on just 10 shares, so it will become much more affordable, but Google stock should not trade any differently as a result of the mini options. From a trader's point of view, it offers a lot of potential, mostly because if the CBOE sees enough interest in the initial series of mini options, it will most likely start to offer them for a larger stock universe. Options traders can take advantage of this, but it will not significantly impact the underlying securities.

 

Stock-only trade: If you're looking to establish a long stock position in GOOG, consider buying the stock when it is below $820 and sell if it falls below $738.00 or dips more than 10% or take profits if it gets to $945.

 

Option trade: If you are looking for a hedged options trade on GOOG, consider an April 765/760 bull-put credit spread for a 70-cent credit. That's a potential 16.3% return (69.1% annualized*) and the stock would have to fall 7.2% to cause a problem.

 

Speculative call-only trade: With the strong run-up we have seen in the stock over the past several months we do not want to set up a speculative call-only trade on the stock at the current time.

 

Adobe reports fiscal first quarter earnings March 19

What's happening with ADBE: Adobe ADBE has been steadily rising since last August. In fact, since the beginning of August the stock has posted a gain of 36%, and is currently trading just shy of its 52 week high. The stock has been strong, but really made a strong move over the last month. Over the last week the stock has been in a sideways pattern as traders await the company's fiscal first quarter results on March 19. Analysts expect to see earnings of $0.31 per share, down from $0.57 during the same period last year.

 

Technical analysis: ADBE was recently trading at $41.59, $0.32 under its 12-month high and $12.07 above its 12-month low. Technical indicators for ADBE are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $38.50. Of the 22 analysts who cover the stock eight rate it a "strong buy", one rates it a "buy", twelve rate it a "hold" and one rates it a "strong sell". The stock receives Standard and Poor's 2 STARS "Sell" ranking.

 

Analysts' thoughts: Adobe has been on a big run lately. On a valuation basis, the stock has become a bit pricey, currently trading with a P/E of 25.1. The company's last earnings report came on December 13 when it reported fourth quarter earnings of $0.61 per share, topping the $0.57 that analysts had forecast. Analysts have generally remained bullish on the stock, and there is little reason to expect anything too disappointing in its fiscal Q1 report. Based on its recent run, we do not see too much upside unless the company shatters analyst estimates, but the downside potential is much greater in the event of an earnings miss. Shareholders may want to consider pulling some money off the table just in case we do see an earnings miss.

 

Stock-only trade: If you're looking to establish a long stock position in ADBE, consider buying the stock when it is below $40.50 and sell if it falls below $36.50 or dips more than 10% or take profits if it gets to $46.50.

 

Option trade: If you are looking for a hedged options trade on ADBE, consider a July 32/37 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (28.1% annualized*) and the stock would have to fall 9.6% 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 $41 call. If ADBE rises just 6.7% 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.

 

 

 

Ross Stores reports fourth quarter earnings March 21

What's happening with ROST: Ross Stores ROST has been on a roller coaster ride so far in 2013. After getting off to a strong start, the stock has been trading lower since mid-February. The stock recently saw selling pressure after the company announced a 1% decrease in February same-store sales when analysts were expecting a 1.1% increase. The company will get a chance to turn things around on March 21 when it reports its fourth quarter results. Analysts are expecting earnings of $1.07 per share, up from $0.85 during the same period last year.

 

Technical analysis: ROST was recently trading at $55.29, down $15.53 from its 12-month high and $3.28 above its 12-month low. Technical indicators for ROST are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above 54.50. Of the 21 analysts who cover the stock 10 rate it a "strong buy", one rates it a "buy", and 10 rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

 

Analysts' thoughts: Analysts are going to be paying close attention to the company's fourth quarter results, especially following its disappointing February sales numbers. While February was not very strong for Ross, I expect to see decent Q4 results, based on strong sales numbers that the company has previously posted. Ross has previously reported that same store sales were up 7% during the first 11 months of 2012, and then in December its same store sales were up by 6%.

 

Stock-only trade: If you're looking to establish a long stock position in ROST, consider buying the stock when it is below $55.50 and sell if it falls below $50 or dips more than 10% or take profits if it gets to $64.

 

Option trade: If you are looking for a hedged options trade on ROST, consider an April 47.50/52.50 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (57.9% annualized*) and the stock would have to fall 8.4% to cause a problem.

 

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the August $55 call. If ROST 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.

 

 

H&R Block admits to widespread tax errors

What's happening with HRB: H&R Block has been trading steadily higher since May of 2012, and is currently just shy of its 52-week high. The company recently admitted to having a large number of filing errors in this year's tax returns, which will result in delayed payment of refunds for some of its customers. The IRS announced that around 660,000 returns were filed with errors, and H&R Block admitted to having submitted hundreds of thousands of returns with the errors before they became aware of the situation. 

 

Technical analysis: HRB was recently trading at $28.19, $0.08 below its 12-month high and $13.84 above its 12-month low. Technical indicators for HRB are bullish and the stock is in a strong upward trend. The stock has support above $25. Of the four analysts who cover the stock two rate it a "strong buy", and two rate it a "hold. The stock receives Standard and Poor's 3 STARS "Hold" ranking.

 

Analysts' thoughts: The fact that H&R Block had some filing errors is not likely to hurt the company's bottom line. We are deep enough into the tax season that the majority of people have already filed their taxes, so the impact will not be as big as it would have been if the errors had occurred earlier in the year. It is also important to remember that H&R Block was not the only filer to run into problems, so it was not an exclusive situation, which would have made H&R Block look worse. A final reason why it will not have much impact is that the company reported that it has identified the problem and corrected it. It is unfortunate that many customers will see a delay in their refunds, but investors should not expect to see any impact on the company's quarterly numbers. Next year on the other hand, taxpayers who remember the mistake may look for an alternative option.

 

Stock-only trade: If you're looking to establish a long stock position in HRB, consider buying the stock when it is below $28 and sell if it falls below $25.25 or dips more than 10% or take profits if it gets to $32.25.

 

Option trade: If you are looking for a hedged options trade on HRB, consider a July 20/25 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (22.9% annualized*) and the stock would have to fall 9.6% to cause a problem.

 

Speculative call-only trade: With the strong run up we have seen in the stock over the past several months we do not want to set up a speculative call-only trade on the stock at the current time.

 

 

Existing home sales data due March 21

What's happening with MDC: MDC Holdings MDC is a homebuilder based out of Denver, CO. Despite an improving housing market, shares of MDC have not been very strong thus far in 2013. Year to date, the stock has managed to appreciate just 2.6%, but it could make a move this week with a couple of big housing data announcements on the schedule. On March 21 we will get existing home sales data for February, and on March 20 homebuilder Lennar LEN will be reporting its fiscal first quarter results.

 

Technical analysis: MDC was recently trading at $38.49, down $3.92 from its 12-month high and $15.05 above its 12-month low. Technical indicators for MDC are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $37.50 and resistance under $40. Of the seven analysts who cover the stock one rates it a "strong buy", and six rate it a "hold. The stock receives Standard and Poor's 3 STARS "Hold" ranking.

 

Analysts' thoughts: Most industry experts agree that the housing market has been improving as a whole. While the market still has a long way to go to get back to its pre-recession status, there have been encouraging signs. If we get a strong earnings report from Lennar on Wednesday and a positive reading on February existing home sales the following day, we expect the entire industry to trade higher, taking MDC with it.

 

Stock-only trade: If you're looking to establish a long stock position in MDC, consider buying the stock when it is below $27.50 and sell if it falls below $24.75 or dips more than 10% or take profits if it gets to $31.75.

 

Option trade: If you are looking for a hedged options trade on MDC, consider an April 32/35 bull-put credit spread for a 25-cent credit. That's a potential 9.1% return (38.6% annualized*) and the stock would have to fall 8.4% 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 $37 call. If MDC 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.

 

 

*Annualized returns provided for comparison purposes only

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At the time of writing, Mr. Fowlkesdoes not have direct ownership in any of the stocks mentioned.