Market Overview

Stocks to Watch for the Week of July 1, 2013

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Michael Fowlkes, InvestorsObserver

Microsoft gets into the 3D printing craze
What's happening with MSFT:
With 3D printing gaining in popularity, Microsoft (NASDAQ: MSFT) has decided to get into the game by announcing that the newest version of its operating system, Windows 8.1, will feature built-in support for 3D printers. Microsoft stock has been strong so far this year, trading up 30.6% year to date.

Technical analysis: MSFT was recently trading at $34.35, down $1.43 from its 12-month high and $8.09 above its 12-month low. Technical indicators for MSFT are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $32.75. Of the 30 analysts who cover the stock 11 rate it a "strong buy", four rate it a "buy", and 15 rate it a "hold". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:With 3D printing getting so much attention as of late, and with prices of 3D printers becoming more affordable, it is a smart move on Microsoft's part to add built-in support into its next generation of Windows. Microsoft has been slow in the past to jump on new technology, so it is encouraging to see such a quick move into 3D printing. While the 3D printing market is still in its infancy, it is gaining steam, and while 3D support may not result in a material amount of new sales, it does keep Microsoft in the game, and will not lead to lower sales by consumers wanting 3D printing support on their personal machines.

Stock-only trade: If you're looking to establish a long stock position in MSFT, consider buying the stock under $34.50, 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 MSFT, consider an August 30/32 bull-put credit spread for a 25-cent credit. That's a potential 14.3% return (102.2% annualized*) and the stock would have to fall 6.1% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $30 call. If MSFT rises just 3.6% 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.

Salesforce sets aside differences with Oracle
What's happening with CRM:
With so much attention being put on cloud computing, Salesforce.com (NYSE: CRM) announced it had entered into a nine year deal with Oracle (NASDAQ: ORCL) that will bring CRM software to Orcale's cloud. Salesforce has been trading sharply lower since the middle of May, and is currently down 9.6% year to date.

Technical analysis: CRM was recently trading at $38.00, down $9.58 from its 12-month high and $7.95 above its 12-month low. Technical indicators for CRM are bearish and the stock is in a strong downward trend. The stock has support above $36.75, and resistance below $42.50. Of the 32 analysts who cover the stock 23 rate it a "strong buy", four rate it a "buy", four rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:Salesforce and Oracle have been in tough competition over the years, but it is a smart move on both their parts to team up in order to take advantage of the growing interest in cloud computing. The two companies have been bitter rivals dating back to 2000, but with cloud computing being one of the fastest-growing segments in technology, both companies understand the power of collaborating. Part of the deal involves Salesforce purchasing human capital management software from Oracle, which will allow the company to avoid putting in the time and capital required to develop its own competing software. Working together, both companies will be able to take advantage of the other company's strengths in order to grow market share in the cloud computing market.

Stock-only trade: If you're looking to establish a long stock position in CRM, 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 CRM, consider an August 28.75/33.75 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 10.0% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the September $36 call. If CRM rises just 6.9% 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.

Sprint Nextel hopes new owner can make it more competitive
What's happening with S:
U.S. wireless carrier Sprint Nextel (NYSE: S) has been in the middle of a couple bidding wars this year. The first involved bids to acquire the company itself, with DISH Network finally giving up the fight, and Japan based SoftBank winning the war. The SoftBank deal includes $5 billion that the company can use to boost its network speed, and make it more competitive with the two main U.S. players, AT&T (NYSE: T) and Verizon (NYSE: VZ). With the acquisition being expected for months, the stock has been trading right around $7 a share since April, and is currently up 22.9% year to date.

Technical analysis: S was recently trading at $6.97, $0.53 below from its 12-month high and $3.89 above its 12-month low. Technical indicators for S are bearish and the stock is showing signs of a possible trend reversal. The stock has resistance under $7.25. Of the 20 analysts who cover the stock four rate it a "strong buy", one rates it a "buy", 12 rate it a "hold", and three rate it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:SoftBank's CEO has publicly stated that the main difference he sees between the Japanese wireless market and that of the U.S. is the network speed difference. The U.S. has one of the slowest wireless networks of any developed nation, and a big reason for that is the lack of competition in the market. With AT&T and Verizon in total control of the market, there has been little reason for either company to beef up their network speeds. If Sprint is able to improve its network speed, it could not only steal market share away from the competition, but also lead to a revolution in the U.S. where all major wireless providers are forced to increase speeds as well.

Stock-only trade: If you're looking to establish a long stock position in S, consider buying the stock under $7 and sell if the stock drops under $6.25 or take profits if it gets to $8.50.

Option trade: The options on the stock are not priced favorably for a hedged trade at the current time.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $6 call. If S rises just 2.8% 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.

Gold prices continue to weaken
What's happening with NEM:
Gold prices have been trending lower for months, and as a result gold stocks have been weak. Newmont Mining (NYSE: NEM) has been in a steady downwards trend since last September, and the stock is now down 40.1% year to date. 

Technical analysis: NEM was recently trading at $27.22, down $30.71 from its 12-month high and just $0.15 above its 12-month low. Technical indicators for NEM are bearish and the stock is in a weak downward trend. The stock has resistance under $32.00. Of the 17 analysts who cover the stock eight rate it a "strong buy", eight rate it a "hold", and one rates it a "strong sell". The stock receives Standard and Poor's 3 STARS "Hold" ranking.

Analysts' thoughts:Gold prices have been in freefall, but I do not see too much additional downside. While I do not expect to see gold trade too much lower, I also do not believe we are going to see any major recovery during the remainder of the year. Interest rates are expected to begin rising over the upcoming months, and this will prevent any major gains in the precious metal. Gold is currently looking very oversold, but that has been the case for a while now. The difference this time, is that historically this is the time of year when gold prices bottom out, so we could see gold start to stabilize in the upcoming weeks, which will help stop Newmont Mining's descent, but there is little reason to believe that NEM is a good buying opportunity at the current time. 

Stock-only trade: Until we see gold prices start to stabilize we would not want to set up any new long positions in the stock.

Option trade: If you are looking for a hedged options trade on NEM, consider a July 20/25 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (138.0% annualized*) and the stock would have to fall 6.7% to cause a problem.

Speculative option-only trade: We do not see too much additional downside risk at the current time, but also do not believe there is enough upside potential to justify an options-only trade at the current time.

Constellation Brands reports fiscal first quarter earnings on July 2
What's happening with STZ:
Beverage manufacturer Constellation Brands (NYSE: STZ) will report its fiscal first quarter results on July 2. Going into its quarterly report, analysts have forecast the company to report earnings of $0.40 per share. During the same period last year the company had earnings of $0.40 per share, which was a penny higher than analyst forecasts. The stock has been a top performer in 2013, and despite being in a sideways pattern over the last month; it is still up 45.2% year to date.

Technical analysis: STZ was recently trading at $51.39, down $3.25 from its 12-month high and $30.02 above its 12-month low. Technical indicators for STZ are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $50.00. 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 4 STARS "Buy" ranking.

Analysts' thoughts:Constellation Brands has been a very strong performer this year, but recent concerns over the strength of the broader market has put the stock into a sideways pattern. Investors are waiting to see how the company performed during its fiscal first quarter before deciding whether to buy into the stock, or take some profits off the table. In April, the company reported earnings that were down 32% from the previous year, but were still higher than analysts were expecting. Earlier this year, the company purchased the 50% Crown Imports it did not already own, which it believes will nearly double its overall sales. An in-line or better than expected earnings report should allow the stock to resume its upward momentum, but a loss can lead to quick profit taking. If you are long the stock, pay close attention to the company's report, and be ready to take some profits off the table if the numbers come in disappointing.

Stock-only trade: If you're looking to establish a long stock position in STZ, consider buying the stock under $51, and sell if it falls below $45 or take profits if it gets to $58.50.

Option trade: If you are looking for a hedged options trade on STZ, consider an August 42.50/47.50 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (216.4% annualized*) and the stock would have to fall 6.4% to cause a problem.

Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $47.50 call. If STZ rises just 5.3% 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. Fowlkes has a long position in Verizon (VZ), but 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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