Stocks to Watch for the Week of January 28, 2013

Michael Fowlkes, InvestorsObserver

Amazon will report fourth quarter results January 29th

What's happening with AMZN: Amazon.com (AMZN) stock has been on fire over the last two months. While the majority of the retail sector had a lackluster holiday shopping season, things were great for Amazon. Online sales were higher than any holiday season in the past, and Amazon was the top used e-commerce site. Amazon has emerged as one of the strongest technology companies and in addition to its thriving internet business it also finds success in the highly-competitive tablet market with the Kindle Fire. Amazon is willing to sell its Android-powered tablet a loss in exchange for gaining market share and using the device as a point of sale device to bring more users to its Amazon store. Analysts expect to see Amazon report fourth quarter earnings of $0.27 per share, down from $0.38 during the same period last year.

Technical analysis: AMZN was recently trading at $268.11, down $6.39 from its 12-month high and $96.11 above its 12-month low. Technical indicators for AMZN are bullish and the stock is in a weak upward trend. The stock has support above $254.25 and resistance below $262.75. Of the 30 analysts who cover the stock 22 rate it a "strong buy", one rates it a "buy" and seven rate it a "hold". The stock receives Standard and Poor's 3 STARS "hold" ranking.

Analysts' thoughts: We expect Amazon to show continued strength through 2013. Consumers trust the internet for their shopping needs and Amazon remains the leader in the industry. While other companies have failed to really make an impact in the tablet market, Amazon entered the market and quickly had the best-selling Android tablets on the market. It is estimated to have sold around 6 million Kindle Fire tablets during the holiday season. As Amazon continues to penetrate the market, it will improve revenues from its digital downloads. Since the margins on its digital downloads is so high, the more tablets it can sell the better. Amazon was very clever to sell the tablets at a loss, and its forward thinking approach to using the Kindle Fire as a point of sale device will pay off huge down the road.

Stock-only trade: While we are bullish on the stock, we would not recommend jumping into a new position at the current time. We would rather set up a new position only on a dip and would like get into the stock under $240 a share.

Option trade: If you are looking for a hedged options trade on AMZN, consider a March 225/230 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (70.8% annualized*) and the stock would have to fall 14.0% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the July $280 call. If AMZN rises just 13.5% 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.

New York soda ban contested in court

What's happening with PEP: Shares of Pepsico (PEP) are trading near a 52-week high after a strong jump in the past month. Soft drink makers still see strong growth of soft drink sales in emerging markets, but the recent trend in the U.S. has been moving away from soft drinks in favor of healthier selections such as water and juice. Pepsi has been successful in building its non-soft drink brands, but is still vulnerable should the situation in the U.S. get more extreme. New York City Mayor Michael Bloomberg is hoping to curb the amount of soda his resident drink by placing a ban on the sale of sugary drinks larger than 16 ounces in size. The ban is supposed to take effect in March, but is currently being contested in a court of law. Even if Bloomberg's ban does take effect, the impact will not be material on Pepsico, but it could encourage more major metropolitan areas to follow suit, which would start to impact Pepsi sales.

Technical analysis: PEP was recently trading at $71.81, down $1.85 from its 12-month high and $9.66 above its 12-month low. Technical indicators for PEP are bullish with the stock in a strong upward trend. The stock has support above $67.75 and resistance below $69.90. Of the 15 analysts who cover the stock eight rate it a "strong buy", three rate it a "buy" and four rate it a "hold".  The stock receives Standard and Poor's 4 STARS "Accumulate" ranking.

Analysts' thoughts: We do not expect too much activity in soft drink makers regardless of the decision the courts reach in regards to Mayor Bloomberg's ban on large sugary drinks. The soft drink industry has realized for years that the obesity problem in the U.S. could cause a shift away from soda, and the big players such as Pepsi and Coca-Cola (KO) have done a pretty good job in preparing for changing trends. Having said that, we don't see too much more upside to the stock. It is trading very close to its 52-week high, and each time it has been at these levels over the past two years we have seen profit taking come in and push shares lower.

Stock-only trade: With the stock trading so near its 52-week high with a P/E just shy of 20 we would not like to set up new long position in the stock at the current time. We will revisit the situation in a month or two to see where the stock is trading and reconsider our options.

Option trade: If you are looking for a hedged options trade on PEP, consider an April 65/70 bull-put credit spread for a 65-cent credit. That's a potential 14.9% return (63.4% annualized*) and the stock would have to fall 1.6% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the July $72.50 call. If PEP rises just 3.9% 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.

General Motors will react to Ford's earnings on January 29

What's happening with GM: The auto industry has been strong of late, and General Motors (GM) has been no exception. The stock has had a bit of selling pressure since hitting its 52-week high earlier this month, but this has more to do with the current economic situation in Europe than it does with the auto market in the U.S. The auto industry has been in decline in Europe for the last 15 months, and December, new car registrations in the European Union were down 16.3%, the steepest one-month decline since 2008. GM's biggest American competitor, Ford Motor (F) will report its fourth quarter results on January 29, and its results will have an impact on General Motors, especially any insight that Ford gives on the current condition in Europe.

Technical analysis: GM was recently trading at $28.57, down $2.11 from its 12-month high and $9.85 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 $26.10. Of the 15 analysts who cover the stock 10 rate it a "strong buy", one rates it a "buy", three rate it a "hold" and one rates it a "sell". The stock receives Standard and Poor's 4 STARS "Accumulate" ranking.

Analysts' thoughts: We expect to see the American auto market continue to improve in 2013. New vehicle offerings, a stable economy, and pickup demand remaining strong analysts believe that U.S. auto sales will eclipse the 15 million mark this year and rise above 16 million in 2014. In December the U.S. government announced that it would sell its remaining 500 million shares of GM stock over the next 12 to 14 months, and as GM sheds the image of government control investors will be more likely to buy into the stock. We will keep a close eye on the European situation, since GM does a material amount of business in the region, but for now the U.S. market has been more than strong enough to offset the weak European market.

Stock-only trade: We do not like GM at its current level. The run up we saw in the latter part of December appears to have been overdone and we believe there is still more room to the downside before the stock finds support. We would look to get into GM if shares were to trade below $26. We would sell the stock if it falls under $23.75 or 10% under your purchase price and take profits off the table should the stock jump above $29.75.

Option trade: If you are looking for a hedged options trade on GM, consider a March 22/27 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 4.1% to cause a problem.

Speculative option trade: For those of you with an appetite for higher risk and bigger returns, consider buying the September $29 call. If GM rises just 11.9% 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.

Yahoo reports fourth quarter earnings January 28th

What's happening with YHOO: Yahoo (YHOO) has been in a relatively flat trading pattern so far this year after experiencing a steep run up in price during the last four months of 2012. The stock accelerated in October after it closed a long-awaited deal to sell half its stake in China's Alibaba Group for $7.6 billion. The deal came shortly after Yahoo announced that it had appointed Marissa Mayer to the role of CEO. Mayer has a long history in the tech field, cutting her teeth in the industry during a 13 year stint at Google, where she rose through the ranks to become Vice President of some of Google's most valuable products, including Maps, Local, and at one point was Vice President of Search Products. Yahoo is expected to post fourth quarter earnings of $0.28 per share, up from $0.24 during the same period last year. 

Technical analysis: YHOO was recently trading at $20.11, $0.21 under its 52 week high and $5.76 above its 12-month low. Technical indicators for YHOO are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $19. Of the 25 analysts who cover the stock two rate it a "strong buy", two rate it a "buy", 20 rate it a "hold" and one rates it a "sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: Yahoo continues to work on reinventing itself and with the big cash infusion it recently received we expect to see some big acquisitions take place this year. Before Mayer was appointed to CEO of the company, it appeared as though Yahoo was moving away from search and instead focusing its attention solely on becoming a media outlet, but with Mayer's experience in the search industry we believe that the company will start to regain its footing in the search market. We expect to see decent quarterly earnings, but not sensational enough to really move the stock.

Stock-only trade: If you're looking to establish a long stock position in, we like the stock at its current level, but would put in a stop loss order just in case the company disappoints with its fourth quarter earnings numbers. Set a stop loss around $18.25, and take profits if you see the stock trade higher than $23.

Option trade: If you are looking for a hedged options trade on YHOO, consider a April 14/19 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (36.9% annualized*) and the stock would have to fall 3.5% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the July $21 call. If YHOO rises just 11.6% 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.

Federal Reserve meeting minutes to be released on January 28

What's happening with NEM: Over the past year, Newmont Mining (NEM) has been in a downward trend. Despite record-low interest rates, gold has not rallied to the extent that one would have imagined. On January 28, the Federal Reserve will discuss its latest meeting, and we expect to see the Fed continue on its current path of near zero interest rates in hopes of keeping the overall economy in recovery mode. Nations across the globe are in the midst of stimulating their economies, with Japan being the latest company to announce plans to devalue their currency in order to make their exports more attractive. If the Fed announces that it will continue to keep the same policy we do not expect to see much upside to gold.

Technical analysis: NEM was recently trading at $44.76, down $19.67 from its 12-month high and $1.81 above its 12-month low. Technical indicators for NEM are bullish with the stock in a weak downward trend. The stock has support above $44.25 and resistance under $45.70. Of the 18 analysts who cover the stock eight rate it a "strong buy", one rates it a "buy" and nine rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: We expect to see the Federal Reserve maintain its current policy, at least through the end of 2014. Gold prices remain high, but have been stuck in a tight trading pattern since the middle of 2011, and we do not believe that that is going to change any time soon. Gold typically rises when investors believe that the global economy is in serious jeopardy of disaster, but we did not see much movement during the recent fiscal cliff drama in Washington. Now that a temporary deal has been reached to raise the U.S. debt limit to cover expenses for the next four months, it seems unlikely that investors are going to flock to gold any time soon.

Stock-only trade: If you're looking to establish a long stock position in NEM, we like the stock under $44.50. We would sell the stock if it falls under $40.50 or 10% under your purchase price, and take profits off the table should the stock jump above $49.

Option trade: If you are looking for a hedged options trade on NEM, consider a March 37/42 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (97.6% annualized*) and the stock would have to fall 4.8% 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 $45 call. If NEM rises just 8.7% 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.

*Annualized returns provided for comparison purposes only

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At the time of writing, Mr. Fowlkesowns a long position in AMZN but does not have direct ownership in any of the other stocks mentioned.