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It is easy to get completely caught up in the macro market catalysts, but investors should not fall into this trap. Earnings season is still under way and as such, investors should pinpoint opportunities among cheap stocks that could use the earnings reports as bullish catalysts.

Here are three companies with earnings this Friday. Their cheap valuations and upcoming earnings make them prime candidates for potential upside moves. While they have been moving in line with other market components because of the elevated correlations caused by low volume and major macro market headlines, strong earnings should provide a sustainable value driver.

J.C. Penney Co Inc (JCP)

The department store chain reports its first earnings since hiring Rob Johnson, who made a name for himself with successful stints at Target Corp (TGT) and Apple Inc (AAPL). While he will not assume the CEO position until November 1, 2011, he joined the Board of Directors on August 1, 2011.

In the month ending April 30, 2011, sales were nearly flat compared to the year ago quarter, but gross margins declined from 41.49% to 40.45% on rising input costs. The company was able to moderate some of these rising costs by reducing expenses. Investors should continue to pay close attention to the company's margins, sales growth and other initiatives like additional joint ventures similar to the one they have with Sephora. As of April 30, 2011, JCP had 254 Sephora units at 254 locations. This utilization should continue to drive sales per square foot and improve profitability.

The retailer trades at a trailing P/E of 15.14, a forward P/E of 10.41 and a PEG ratio of 0.93. They also sport a price/sales of 0.32 and profit margins of 2.21%.

Tree.Com Inc (TREE)

This company is facing fundamental headwinds because of the severe weakness in the housing market, but the online lending company could be a diamond in the rough at current valuations. The $55.78 million market capitalization company had sales of $198.18 million and $216.77 million of revenues in 2010 and 2009, respectively.

In the quarter ending March 31, 2011, revenues fell sharply to $33.37 million from the year ago quarter. In addition to the sales declines, the company has not been able to right size its operating expenses. We think investors should be cautious of this stock but it is still worth additional attention. If management can stabilize revenues and properly address their margins, investors should change their attitude towards this depressed stock.

DryShips, Inc (DRYS)

The Athens based shipping company owns and operates drybulk shipping and drilling rigs. In 2010, the company reported $859.75 million in sales, an increase from 2009 levels of $819.83 million but still well below the 2008 peak of $1.08 billion.

The company trades at low valuations. The stock has a trailing P/E of 4.04, a forward P/E of 2.98 and a price/book of 0.29. Even once the company's heavy debt load is taken into account, the valuations are still modest, with an EV/EBITDA of 6.64. Still, investors should be cautious. If the market continues to sell-off amid diminished global growth expectations, DRYS will be susceptible to further weakness especially because of its financial and economic leverage.

Source: 3 Cheap Stocks Reporting Earnings This Week