By Neal Rau
In this market environment, especially given the apparent peak that was realized after the FOMC meeting, it is important that investors not chase stocks going into earnings. Therefore, we have prepared a combined fundamental and price-based analysis to help investors navigate these earnings releases before the news.
The following companies report earnings on November 1.
Chevron Corporation (NYSE:CVX) is expected to report $2.80 per share when the company reports its Q3 earnings on Friday, November 1, before the market open. Last year in the same quarter, the company posted earnings of $2.57 per share, $0.23 less than what analysts are expecting in Q3 2013. CVX issued an interim update for Q3 stating that earnings are expected to be lower than in the second quarter. Second quarter earnings included foreign exchange gains of approximately $300 million, compared to similarly sized losses anticipated for the third quarter. The stock is up 13% YTD and up about 4% over the last few weeks. Should investors buy, sell or hold ahead of earnings?
According to our real-time trading report, shares of CVX recently bounced about 4% higher off support in the second week of October. The stock has been trading in a range over the past 6 months, and currently trading above support. If shares move lower and test long-term support again, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support and caution investors not to chase the stock ahead of earnings, as the stock has already moved higher off support.
ALLETE Inc (NYSE:ALE) is scheduled to report its Q3 earnings results on Friday November 1 before the market open. Analysts are expecting the company to earn $0.75 versus $0.78 it earned in the same quarter a year ago. Last quarter the company reported earnings of $0.35 per share, $0.05 worse than the consensus estimate of $0.40. Revenues rose 8.9% YOY to $235.6 million versus the $233.95 million consensus. ALLETE issued in-line guidance for FY13, estimated EPS of $2.58-2.78 vs. $2.75 consensus estimate. The stock is up 25% YTD and up 11% over the last month. Should investors buy, sell or hold ALE?
Price matters and right now shares of ALE are getting close to a test of long-term resistance, as defined in the real-time trading report. As a rule, if the stock tests long-term resistance, and remains below long-term resistance, we expect lower levels and a test of support. That would make ALE a sell/short at resistance, based on the real-time trading report, with risk controls in place if resistance breaks higher.
Church & Dwight Co., Inc. (NYSE:CHD) is expected to report $0.73 when it reports Q3 numbers on Friday, November 1, before the bell, which would be a 10% increase from the same quarter a year ago. Last quarter the company reported Q2 earnings in June of $0.61 per share, $0.01 better than the consensus estimate of $0.60. Revenues rose 13.1% YOY to $787.6 million versus the $791.02 million consensus. The stock is up 20% YTD and trading near 52-week highs. Should investors buy, sell or hold ahead of earnings?
Over the past six months, smart money has been selling shares of CHD when the stock trades near resistance. Now, after a 7% pop in one month, the stock is sitting very close to resistance again, but this time right before earnings. Even if the company beats estimates on Friday, it does not mean the stock will continue to rise, as the chart shows that price matters. According to our rule, we are sellers at resistance, and as long as the stock remains below resistance, we expect lower levels and a test of support. Based on the real-time trading report, CHD is a sell/short at resistance, with risk controls in place if resistance breaks higher.
Dril-Quip, Inc. (NYSE:DRQ) is scheduled to report earnings on Friday, November 1, before the market open, and analysts are expecting the company to earn $1.05 per share, which would be a 44% increase from the same quarter a year ago. Last quarter, the company reported Q2 earnings of $1.05 per share, $0.17 better than the consensus estimate of $0.88. Revenues rose 25.7% YOY to $222.03 million versus the $202.16 million consensus. DRQ has been the focus of rumors suggesting it might be a takeover target, and recently and shares have risen over 28% in just the last three months. Is the stock still a buy at current levels ahead of earnings?
According to the real-time trading report, shares of DRQ are getting close to a test of long-term resistance, and as a rule we are sellers if resistance is tested (it is not there yet). If the stock does test long-term resistance, and remains below resistance, we would expect a full oscillation to support. That would make DRQ a sell/short at long-term resistance, however resistance also acts as our risk control, and if resistance breaks higher, buy signals would surface.
Navigating earnings can be tricky. Sometimes investor earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.