Market Overview

Stocks to Watch for the Week of April 15, 2013

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Michael Fowlkes, InvestorsObserver

Coca-Cola reports first quarter earnings April 16

What's happening with KO: The world's biggest soft drink maker, Coca-Cola (NYSE: KO) will report its first quarter earnings on April 16. Analysts expect to see the company post earnings of $0.45 per share, up a penny from the same period last year. The stock has be strong thus far in 2013, gaining 14% year to date, and is currently just shy of its 52-week high.

Technical analysis: KO was recently trading at $41.07, just $0.10 below its 12-month high and $5.49 above its 12-month low. Technical indicators for KO are bullish and the stock is in a strong upward trend. The stock has support above $37.50. Of the 15 analysts who cover the stock eight rate it a "strong buy", two rate it a "buy", and five rate it a "hold". The stock receives Standard and Poor's 5 STARS "Strong Buy" ranking.

Analysts' thoughts: Coca-Cola has been dealing with rising commodity prices, but I believe the higher costs will be more than offset by the company's growth in emerging markets. During the last fiscal year, the company's global volume grew 5%, aided by strong growth in Africa and China, a trend that I expect to continue. Its volume in China grew 10% during the fourth quarter, and investors will look for additional information on its Chinese growth during the first quarter. I see no reason why the company will not be able to post earnings that are at least in-line with analyst estimates for its first quarter.

Stock-only trade: If you're looking to establish a long stock position in KO, consider buying the stock when it is below $41 and sell if it falls below $37 or dips more than 10% or take profits if it gets to $47.

Option trade: If you are looking for a hedged options trade on KO, consider a June 34/39 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (43.5% annualized*) and the stock would have to fall 4.1% 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 $40 call. If KO rises just 4.0% 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.

 

U.S. Bancorp will report first quarter results April 16
What's happening with USB
: U.S. Bancorp (NYSE: USB) will report its first quarter results before the market opens on April 16. Wall Street forecasts earnings of $0.73 per share, which up from the $0.67 that the company earned during the same period last year. The company has at least matched its earnings forecast for the last 16 quarters, and will look to extend that streak this week with its first quarter report. The stock has been strong this year and is currently trading just shy of its 52-week high.

Technical analysis: USB was recently trading at $34.19, down $1.27 from its 12-month high and $5.61 above its 12-month low. Technical indicators for USB are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $33.40. Of the 26 analysts who cover the stock nine rate it a "strong buy", one rates it a "buy", 15 rate it a "hold", and one rates it a "sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: USB has shown strength over the past year and there is no reason to expect that to end. The main thing that we want to pay attention to is information on the company's mortgage loans. Experts believe that loan growth slowed in the quarter, mainly a result of the spike that took place during the latter past of 2012. While this lending slowdown will have an impact on some of the big banks, I remain bullish on USB. The company has been growing its earnings, and despite its recent stock strength it still remains relatively cheap with a P/E of just 12.

Stock-only trade: If you're looking to establish a long stock position in USB, consider buying the stock when it is below $34 and sell if it falls below $30.50 or dips more than 10% or take profits if it gets to $39.

Option trade: We do not see any hedged trades that we like at the current time on USB. We would want to take on a bullish hedged trade, but the options are not priced attractively for setting up this sort of trade at the current time.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the September $33 call. If USB 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.

 

Fifth Third reports earnings on April 18

What's happening with FITB: Fifth Third (NASDAQ: FITB) is going to report its first quarter results on April 18. Going into the quarterly report, analysts have forecast earnings of $0.39, up from $0.36 during the same period last year. The company has reported better than expected earnings numbers for each of the last three quarters, and will look to extend that streak this week. Wall Street traders have been buying into the stock, which is currently trading just shy of its 52-week high.

Technical analysis: FITB was recently trading at $16.63, just $0.14 below its 12-month high and $4.59 above its 12-month low. Technical indicators for FITB are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $15.70. Of the 23 analysts who cover the stock eight rate it a "strong buy", three rate it a "buy", 11 rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: I expect to see decent numbers from Fifth Third when it reports its first quarter results. The company easily passed the recent round of stress tests by the Federal Reserve, and gained approval to move ahead with its capital plan, meaning a dividend hike for investors. Fifth Third has been performing well over the past several months, and I expect to see continued strength through the remainder of the year.

Stock-only trade: If you're looking to establish a long stock position in FITB, consider buying the stock when it is below $16.50 and sell if it falls below $14.75 or dips more than 10% or take profits if it gets to $19.

Option trade: With the stock trading so close to its 52-week high, the options are not priced attractively enough to make a hedged option play on the stock at this time. We will revisit the situation following its earnings report to see if the options warrant placing a hedged trade on the stock.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the November $15 call. If FITB rises just 5.0% 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.

 

Family Dollar cuts its full year forecast

What's happening with DLTR: Dollar Tree's (NASDAQ: DLTR) biggest competitors, Family Dollar (FDO) recently reported its fiscal second quarter results, missing its earnings forecast and lowering its full year guidance. The company trimmed its full year guidance due to its belief that consumers are going to continue to cut back on non-essential spending through the remainder of the year. Over the last three months, Dollar Tree has traded higher, but it turned sideways at the end of February, and has been trending lower over the last few weeks as investors grow weary over the state of the retail sector as a whole.

Technical analysis: DLTR was recently trading at $46.12, down $10.70 from its 12-month high and $9.00 above its 12-month low. Technical indicators for DLTR are bullish and the stock is in a strong upward trend. The stock has support above $44.50. Of the 18 analysts who cover the stock eight rate it a "strong buy", two rate it a "buy", and eight rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: Despite the weaker than expected forecast by Family Dollar, I still remain bullish on the discount retail sector. Even if consumers do cut back on their spending, there is little reason to believe that deep discounters like Dollar Tree will see too significant of a sales drop. A more cost conscience consumer is never good for retailers, but it does play into the hands of dollar stores such as Dollar Tree. I view any short term weakness as a buying opportunity in the stock.

Stock-only trade: If you're looking to establish a long stock position in DLTR, consider buying the stock when it is below $46 and sell if it falls below $41.50 or dips more than 10% or take profits if it gets to $53.

Option trade: If you are looking for a hedged options trade on DLTR, consider a August 37.50/42.50 bull-put credit spread for a 90-cent credit. That's a potential 22% return (62.6% 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 $45 call. If DLTR rises just 6.2% 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.

 

JC Penney brings back former CEO

What's happening with JCP: After just seventeen months on the job, Ron Johnson has been ousted as CEO of J.C. Penney (NYSE: JCP). Having grown impatient waiting on Johnson's changes to turn the company around, the board of directors decided to remove Johnson and bring back his predecessor, Mike Ullman, to the position. The change in CEOs resulted in a major selling for JCP which is now just above its 52-week low.

Technical analysis: JCP was recently trading at $14.09, down $22.80 from its 12-month high and just $0.54 above its 12-month low. Technical indicators for JCP are bearish and the stock is in a weak downward trend. The stock has resistance below $16. Of the 16 analysts who cover the stock one rates it a "strong buy", 11 rate it a "hold", one rates it a "sell", and three rate it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: The recent management shuffle is just another example of many missteps the company has made in recent years. When it brought Johnson on as the CEO, it misjudged the impact his experience at Apple (AAPL) would have on his ability to turn things around at J.C. Penney. I believe that Johnson should have been given a bit more time for his changes to work. Canning him too early could be a mistake by the board. But a bigger mistake in my opinion was to bring back the former CEO.  Ullman was ousted due to a conflict with activist investor Bill Ackman who remains a major shareholder in the company. J.C. Penney has a lot of work ahead of it, but with the recent selling we have seen in the stock I do not see too much additional downside for investors at the current time.

Stock-only trade: If you're looking to establish a long stock position in JCP, consider buying the stock when it is below $14.25 and sell if it falls below $12.85 or dips more than 10% or take profits if it gets to $16.25.

Option trade: If you are looking for a hedged options trade on JCP, consider a May 7/12 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (109.6% 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 August $13 call. If JCP 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.

 

*Annualized returns provided for comparison purposes only

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

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Markets Trading Ideas

 

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