3 Stocks To Buy, 1 Stock To Sell And What's Next For The Market

Includes: AMZN, EXPE, TSN, WBA
by: David Ristau

Market Recap:

The market continued higher on a quiet day in the market, making it 19 weeks of higher Tuesdays in the market. The market rallied after two Fed officials both noted that they would not think QE is tapering soon, which has been a concern over the last couple weeks. QE provides liquidity to markets and keeps bond yields lower. By keeping yields down, the market moves to equities. Further, liquidating the markets removes concern as well. The move provides nice upside for stocks, and the market cheered the announcement that it would not end. It was a quiet day outside of that as there was no major data. Positive earnings from Home Depot (NYSE:HD) and Saks (NYSE:SKS) helped the market while Best Buy (NYSE:BBY) reported a large loss.

The Dow Jones (NYSEARCA:DIA) increased 52 points while the S&P 500 (NYSEARCA:SPY) increased three points.

Stocks To Trade:

Today, we are looking at a bullish position in Walgreen (WAG), Amazon.com (NASDAQ:AMZN), Tyson Foods (NYSE:TSN), and bearish position in Expedia (NASDAQ:EXPE).

Walgreen looks very solid moving into their next earnings report at the end of June with over 20% earnings growth expected along with 4% revenue growth. The company's last batch of earnings was very solid with solid strength in Europe and benefits from Express Scripts (NASDAQ:ESRX). WAG's quarter saw great sales in Europe's health and beauty retailer Alliance Boots. Additionally, the company made a very positive to buy a minority stake in AmerisourceBergen (NYSE:ABC). ABC will help improve WAG's pharmaceutical supply chain, which will allow WAG to improve its offerings and efficiency. Additionally, the move will help WAG sell more prescription drugs that offer a higher multiple than generic drugs. The ABC deal should help reflect in positive market trends in 2013 and beyond, and we believe that shares have very good value based on future earnings.

The company's future PE is currently sitting at 14.3, which is a very solid level of value. The company's price/sales sits at 0.7, which is also a very solid level of value as well. Value is there in shares still, and we believe that the stock still sits at an attractive level. The company should see 10% earnings growth year/year in 2013 and in 2014 due to margin expansion from store remodeling and higher prescription volumes. Additionally, the company's European exposure is starting to show signs of green shoots that are also positive.

The company's last earnings report was very strong, and we believe that it should help give the stock a catalyst into earnings. The company reported March sales were up 3% while April sales were up 4%, and we believe that the company is starting to see a regain of ESRX customers after its debacle previously. We like WAG to continue higher from these levels. One great way to play the stock is through a bull put spread at the 48/46 level along with long shares.

Position: Long, WAG and WAG, Jun22, 48/46 Bull Put Spread

Targets: $52, $55 and 0.00 (max gain is 17% on spread)

Another promising name right now is Amazon.com. AMZN has fully recovered from its earnings debacle, and we like the name moving forward from here. The company stumbled on its last earnings report despite a 22% revenue jump. The company suffered due to weak earnings as the company continues to grow its distribution centers, loses money on its tablet business as it builds its content business, and they increase their cloud offerings. When we look at gross margins, the ratio came in at 26.6%, which is the highest level in a decade. Operating margins and net margins are still weak, but they take into account such things as listed above. With its gross margin improving, the company is showing that profits are on the way, so we see the fall as an overreaction. Shares still do not show great value, according to price-to-earnings ratios, but they still do have value in price/sales. Future PE sits at above 80, while price/sales sits at just south of 2.0. We look for value at 2.5 or lower. So, while earnings are still not there, shares are not entirely overpriced.

We believe the company's growth prospects are very solid. AMZN is expected to see 22% growth in revenue in 2013 and in 2014. Current price/sales already show decent volume, so if the revenue increases strongly, value will only grow stronger in the stock. We believe the company continues to have strong near-term catalysts along with this growth. First off, we believe that AMZN is increasingly becoming an online portal that offers users more than just shopping. Users can now use Amazon video services to watch movies/TV, Amazon Cloud for storage, and much more. Same-day delivery is on the way, and the cloud network has tons of potential. Just today, the company launched Cloud in Canada, and we believe that this process will continue to develop lots of potential sales for the company. AMZN does lack a lot of enterprise income, but for personal users, they are the best. Same-day delivery will only continue to entrench AMZN as the online retailer of the future. The convenience of receiving a package same-day helps AMZN continue to increase its robust profile.

Not to mention that online sales continue to grow (both due to AMZN's growing size but also its growing popularity). In 2013, online sales are expected to grow 9-12% in 2013, and as more and more global citizens plug into the web and mobile, the popularity will continue to grow.

AMZN is one of the most important names of the future of retail, and it's a must own for your portfolio.

Investment: AMZN, Long

Entry: Now

Targets: Hold for 12-24 Months

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Another long that looks very good right now is Tyson Foods. TSN has done well since its May 6 earnings report. In that report, the company lowered its guidance and missed earnings expectations. So, why would we want to own TSN? We believe that the recent shortcoming was a buying opportunity in a long-term strong company. As the company noted, its demand for meat was temporarily hurt by Avian flu scares in China and temporary issues with restaurant traffic. The company, though, did note that they had seen a strong increase in the start of their latest quarter to demand. Additionally, a report came out two weeks ago that noted that red meat and poultry production would be higher in 2014, and a bounce back in 2014 should be expected. Currently, analysts are estimating that TSN will see around 3% revenue growth but 15% earnings growth. That is the key to TSN...margins.

We believe that margins are set for a strong expansion. Much of TSN's margins are tied to wheat prices as its key for Tyson's feed. Wheat prices have been dropping as weather has improved, creating higher supplies due to higher temperatures. Wheat and corn prices were looking strong due to low supply with droughts, cold weather hitting the country. With prices back down, TSN has that as a near-term catalyst. Further, we like what BMO had to say about Tyson's future:

BMO Capital thinks the miss was caused by a temporary shortfall in beef and pork. The firm believes that the company's earnings power is being underestimated, as it is on track to generate normal margins across each of its segments in FY2014. BMO Capital keeps an Outperform rating on the shares.

We believe that, long-term, TSN is another important company. Meat will continue to grow in its consumption with global frontier and emerging markets increasing their diet in meat. Expectations are for meat to recover in the EU by 2015, which will help TSN as well as global markets. Populations continue to rise, and therefore, more meat is needed to fulfill that growth. Check out this report for statistics on meat and population growth. Meat is going to remain an important part of global diets, and we can get TSN cheap. Future PE sits under 10 and price/sales sit under 0.3. Both levels are very strong for value. We like buying TSN now with targets for $26 and $28.

Trade: TSN, Long

Buy Point: Now

Targets: $26, $28

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Finally, we are fairly cautious on Expedia right now. EXPE's recent earnings were not promising, and the competition levels in online travel continue to grow quite strongly. In its latest report, EXPE noted that Hotwire was not going to meet expectations due to increasing competition. The low-end of the market has a lot of competition that continues to grow, and the company no longer has the growth of its Trip Advisor (NASDAQ:TRIP) service to provide growth prospects for the EXPE name. The car rental consolidation has also hurt EXPE as rates for rental cars have gone up, and the high frequency of car rentals on Hotwire and EXPE were a major benefit for the company. As those prices have increased, it has discouraged car rentals. The company dropped its earnings expectations for organic growth due to these two problems.

With valuations very high, this is a problem for EXPE. Growth stocks need to continue to convince investors that growth is not slowing in order to maintain strong valuations. When cracks start to show, these stocks can be hurt a lot. EXPE, currently, sits with a 47 PE. Its future PE sits at 19, meaning that lots of growth is expected. Yet, if that growth is not there...the overvaluation we see in the PE will start to mean overvaluation in future PE. The company has left us with question marks especially after good quarters at Priceline.com (NASDAQ:PCLN) and Orbitz (NYSE:OWW) that suggest EXPE is experiencing company-specific issues.

To continue issues, Lazard Capital noted that trends had softened for EXPE in April. Hotel sales were down as well as airline ticket volume to start its Q2. That issue is not a good sign for a company already struggling. While the company has potential in international markets and would benefit from Europe's recovery, we believe that recovery is still 12 months away at least. These near-term issues have given the stock a black eye, and we do not recommend buying until at least its next quarterly report when the company can regain confidence.

Market Outlook:

Tomorrow, the market has a large slate of data and more Fed talk that will probably mean a busy day. Existing Home Sales, FOMC Minutes, and Crude Inventories are the key data points to watch for the day. Minutes will be key to see if the Fed is talking about dropping QE anytime soon. The most important market news, though, will be what Chairman of the Fed Ben Bernanke says at his testimony tomorrow morning. If he continues with what Fed members Dudley and Bullard noted today, the market will continue up. If he is more hawkish, we should see some pullback.

Charts courtesy of finviz.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The Oxen Group is a team of analysts. This article was written by David Ristau, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article