5 Value Plays to Consider Ahead of Earnings

Includes: ARO, DRYS, GME, HPQ, WMT
by: J Mintzmyer

Following the rollercoaster ride of last week, there are several strong value plays that will be releasing quarterly earnings. Many of these stocks were already out of market favor before last week, and the increased volatility in the market only increased their discount. Below, I will highlight 5 stocks that I believe are not only good earnings plays, but also strong long-term value plays. These selections may appeal to both traders and investors, although I usually write with the latter crowd in mind.

These are all companies that I strongly believe in on a long-term basis, and I have already written value-centric analysis on these stocks in the past two weeks. I will present my case for a short term earnings play followed by a link to an extensive value examination.

Wal-Mart (NYSE:WMT) August 16:

Earnings Play: Although nothing fundamental has changed at Wal-Mart, the stock has fallen 11% over the past 3 months. Negative outlooks based on decreasing same-store US sales have lowered WMT stock while the international numbers keep growing. I’m anticipating a larger-than-expected profit on a flat-to-slight increase in same-store US sales while foreign currency gains will boost international profits in USD terms. If this play doesn’t turn out, WMT offers strong down-side protection.

Value Play: WMT Analysis Article (28 July)

Dryships (NASDAQ:DRYS) August 17:

Earnings Play: DRYS has lost 42% in the past 3 months alongside a struggling shipping industry and disappointing decisions (to some investors) regarding the delay of a full OceanRig spin-off. While all other shipping companies have been reporting losses, look for DRYS to swing a profit fueled by their Ocean Rig business. The $107M book loss on the recent sale of 4 vessels happened outside of Q2, so it should not appear on their books until the Q3 reports. I expect a solid profit and strong outlook on the oil drilling business to push DRYS easily north of $3 in the short-term.

Value Play: DRYS Analysis Article (29 July)

Aeropostale (NYSE:ARO) August 18th:

Earnings Play: ARO recently reported disappointing sales data amidst declining brand popularity and decreasing margins due to cotton price increases. ARO is projecting a conservative $0.02-$0.03 EPS compared with EPS last year. The market reacted strongly to ARO’s negative outlook, and ARO is down a total of 47% in the past 3 months. SKX recently jumped 18.5% in one day following its dismal earnings ($30M loss) because it was slightly better than expected. Look for ARO to exhibit similar behavior if its earnings beat.

Value Play: ARO Analysis Article (2 August)

Gamestop (NYSE:GME) August 18:

Earnings Play: GME has projected earnings of $0.20 to $0.23 per share, which I view as conservative based on the recent integration of Impulse and the first complete quarter of ad revenue from Kongregate. GME noted in its guidance that the EPS guidance did not include potential share repurchases, so this number will likely be higher. GME has lost 27% of share value in the past 3 months based primarily on weak retail outlook.

Value Play:

GME Analysis Article (1 August)

Hewlett-Packard (NYSE:HPQ) August 18:

Earnings Play: HPQ has had strong downward pressure in the markets with a 22% loss in the past 3 months. As referenced in my analysis article, the initial webOS tablet sales are expected to be poor based on an early $100 discount; however, all other segments have been growing. The bar has been set extremely low for HPQ, so even hitting a slight year over year increase should open up the upside potential on this stock.

Value Play:

HPQ Analysis Article (9 August)

Disclosure: I am long HPQ, GME, ARO, DRYS.