Market Overview

Stocks to Watch for the Week of June 24, 2013

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Michael Fowlkes, InvestorsObserver

Altria announces plans to enter rapid growing e-cig market
What's happening with MO:
Tobacco company Altria Group (NYSE: MO) recently announced plans to enter into the electronic cigarette market. With U.S. sales of regular cigarettes on the decline, Altria has decided to jump into the fast growing e-cigarette market with theMarkTen e-cigarette, expected to go on sale in August in Indiana. Altria stock has been a strong performer so far this year, having appreciated 14.8% since the start of the year.

Technical analysis: MO was recently trading at $35.19, down $2.42 from its 12-month high and $5.18 above its 12-month low. Technical indicators for MO are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $34.75. Of the 12 analysts who cover the stock four rate it a "strong buy", two rate it a "buy", and six rate it a "hold". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:Big tobacco companies are seeing a decline in sales of traditional cigarettes, as health concerns and increased bans on public smoking is impacting sales. Altria, which controls around half of the U.S. market, reported a 5.2% decline in cigarette volumes during its first quarter, so it is not surprising to see the company enter into the electronic cigarette market. While the traditional cigarette market is shrinking, sales of e-cigarettes are on the rise. U.S. retail sales of the devices last year were around $500 million, and while that represents just 0.5% of the tobacco market, they are expected to double this year to $1 billion. Altria's biggest competitors, Reynolds America (NYSE: RAI) and Lorillard (NYSE: LO) have already made moves into the market, so it is smart for Altria to follow suit. There is a big future in e-cigarettes, and the move has positive long-term implications for the company.

Stock-only trade: If you're looking to establish a long stock position in MO, consider buying the stock under $35.25, and sell if it falls below $32 or take profits if it gets to $40.

Option trade: If you are looking for a hedged options trade on MO, consider a September 30/32 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (43.6% annualized*) and the stock would have to fall 8.5% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $33 call. If MO rises just 3.7% 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.

Carnival reports second quarter earnings on June 25
What's happening with CCL:
Cruise operator Carnival Corp (NYSE: CCL) will report its second quarter results before the market opens on June 25. The Florida-based company is expected to post earnings of $0.06 per share. It has been a tough year for the company, with the stock losing 6.7% since the start of the 2013.

Technical analysis: CCL was recently trading at $33.82, down $6.13 from its 12-month high and $2.17 above its 12-month low. Technical indicators for CCL are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $32.25, and resistance below $35.25. Of the 15 analysts who cover the stock three rate it a "strong buy", and 12 rate it a "hold". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:Carnival can use some good news. After a string of mishaps with its ships, the company is experiencing lower bookings, and as a result has been forced to lower its prices in order to attract tourists. In addition, it has seen an increase in cancellations. The company has already been forced to lower its full-year guidance twice this year following a fire on one of its ships in the Gulf of Mexico. If the company is able to put up better than expected numbers for its second quarter, we could see its shares make back some of its recent gains, but an earnings miss could lead to a steep sell off for the stock.

Stock-only trade: If you're looking to establish a long stock position in CCL, consider buying the stock under $34, and sell if it falls below $32 or take profits if it gets to $38.75. Pay close attention to the company's earnings report, and be ready to pull the trigger if earnings come in lighter than expected.

Option trade: If you are looking for a hedged options trade on CCL, consider an October 26/29 bull-put credit spread for a 30-cent credit. That's a potential 11.1% return (33.5% annualized*) and the stock would have to fall 13.4% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $31 call. If CCL 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.

DISH Network decides not to new offer for Sprint
What's happening with DISH:
DISH Network (NASDAQ: DISH) has declined the opportunity to make a new offer to purchase wireless provider Sprint (NYSE: S). The company offered to buy the company outright in April, with a bid of $25.5 billion, but was later outbid by the Japanese carrier SoftBank who offered to buy 78% of the company for $21.6 billion. DISH had until June 18 to submit a new offer, but decided to instead focus on completing its tender offer for Clearwire (NASDAQ: CLWR). DISH stock has been in a fairly tight sideways pattern over the last couple of months, and has gained 6.5% since the start of the year.

Technical analysis: DISH was recently trading at $39.27, down $1.68 from its 12-month high and $13.15 above its 12-month low. Technical indicators for DISH are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $38.50. Of the 10 analysts who cover the stock five rate it a "strong buy", and five rate it a "hold". The stock receives Standard and Poor's 4 STARS "Buy" ranking.

Analysts' thoughts:It is imperative that DISH expand its operations, but it is good to see that management was not willing to overpay in order to acquire Sprint. Now that DISH has decided not to make a new offer for Sprint, it will focus instead on its $4.40 bid to acquire a minority stake in Clearwire, but Sprint is looking to block the bid, and has sued DISH on the grounds that the deal violates shareholder rights under Clearwire's charter. DISH has previously stated that it expects its offer to be accepted, but if the courts rule against it then it will be left looking for a new acquisition, and we can expect weakness in the stock. 

Stock-only trade: If you're looking to establish a long stock position in DISH, consider buying the stock under $39.25, and sell if it falls below $36or take profits if it gets to $45.

Option trade: If you are looking for a hedged options trade on DISH, consider a July 32/36 bull-put credit spread for a 35-cent credit. That's a potential 9.6% return (116.7% annualized*) and the stock would have to fall 7.4% to cause a problem.

Speculative call-only trade: We have a bullish sentiment on the stock, but the call options are not priced favorably for a call-only trade at the current time.

Men's Wearhouse fires company founder
What's happening with MW:
In a move rarely seen, Men's Wearhouse (NYSE: MW) announced that it had fired its founder, George Zimmer. Zimmer is not only the founder of the company, but also its chairman and public face. The company did not give any reason for the firing, which was announced just prior to stating that it was postponing its annual shareholder meeting. The stock has been a strong performer during the first part of the year, having gained 17.7% since the start of the year.

Technical analysis: MW was recently trading at $37.04, down $1.55 from its 12-month high and $11.07 above its 12-month low. Technical indicators for MW are bullish and the stock is in a strong upward trend. The stock has support above $34. Of the six analysts who cover the stock four rate it a "strong buy", and two rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:After the company announced it had terminated its founder, George Zimmer, Zimmer fired back, stating that the board terminated him in order to silence his concerns over the direction of the company. The timing of the termination was very odd… coming on the morning of the company's annual shareholder meeting which it then opted to postpone. While we can not assume that something serious happened to lead to the termination, the timing does indicate that there is more to the story than we are being told. Zimmer helped build the company to where it is today, and he is the face and voice that everyone associates with the brand, due to starring in so many commercials with his signature catchphrase: "You are going to love the way you look – I guarantee it". While I do not believe that the company is necessarily going to suffer without Zimmer at the helm, it will be interesting to see what new information comes out on the events that actually led up to the firing.

Stock-only trade: If you're looking to establish a long stock position in MW, consider buying the stock under $37, and sell if it falls below $34 or take profits if it gets to $41.50.

Option trade: If you are looking for a hedged options trade on MW, consider a July 30/34 bull-put credit spread for a 35-cent credit. That's a potential 9.6% return (116.7% annualized*) and the stock would have to fall 7.3% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $34 call. If MW rises just 7.7% 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.

Barnes & Noble reports fiscal Q4 earnings June 25
What's happening with BKS:
Book retailer Barnes & Noble (NYSE: BKS) will report its fiscal fourth quarter results on June 25. Going into the company's quarterly report, analysts have forecast a loss of $0.93 per share. During the same period last year the company had a loss of $0.98 per share. The stock has been a solid performer so far this year, having gained 23.3% since the start of the year.

Technical analysis: BKS was recently trading at $18.83, down $4.88 from its 12-month high and $7.66 above its 12-month low. Technical indicators for BKS are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $16.00 and resistance below $22.25. Of the three analysts who cover the stock two rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:Barnes & Noble has found it difficult to compete in the current market. The rise of digital media has hit brick and mortar bookstores hard, and while Barnes & Noble has been able break into the tablet market with its Color Nook tablet, it has yet to find the success that other book retailers like Amazon (NASDAQ: AMZN) have with its tablet. The company is coming off a rough third quarter, during which Nook sales were down 8.8% from the same period last year. The Nook is a good product, but just not good enough to compete against the army of Android tablets and Apple's (NASDAQ: AAPL) iPhone. To make matters worse, its overall Nook division, which includes sales of the Nook and related services, were down 26% year over year. As a result, its earnings before taxes were down a massive 63% year over year. Barnes & Noble is up nicely this year, but another quarter of disappointing numbers from its Nook division could lead to a steep selloff.

Stock-only trade: If you're looking to establish a long stock position in BKS, consider buying the stock under $18.50 and sell if the stock drops under $16 or take profits if it gets to $22.

Option trade: If you are looking for a hedged options trade on BKS, consider a July 14/16 bull-put credit spread for a 30-cent credit. That's a potential 17.6% return (214.7% annualized*) and the stock would have to fall 11.9% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $15 call. If BKS rises just 7.0% 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.

 

*Annualized returns provided for comparison purposes only

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At the time of writing, Mr. Fowlkes has a long position in Altria Group (MO), Apple (AAPL) and Amazon (AMZN), but does not have direct ownership in any of the other stocks mentioned.

 

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