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This week will kick off earnings season with several of the largest companies answering many of the economic questions with Q3 results. Last week we had Google (NASDAQ:GOOG), Alcoa (NYSE:AA) and JPMorgan Chase (NYSE:JPM) announce earnings, with each watched under a microscope to indicate future results. Alcoa slightly disappointed, JPM beat estimates, yet the market was not satisfied, and Google showed its dominance beating estimates and adding more than $10 billion to its market cap. Earnings have the potential to significantly change the direction of a stock; they can either cause the stock to trend substantially higher or cause the stock to drop lower, but either way ,earnings move markets and weigh heavily on stocks.

I have played earnings for the last 5 years, using it as one of my largest sources of yearly gains. Before earnings are announced, I buy stocks that I believe will outperform based on past performance, current stock position, key developments and expectations. I always set aside 20% of my total portfolio value to make short term investments before earnings are announced, and while it may not be the safest way to invest, it's definitely the most rewarding. To better explain, let's look at 5 companies announcing earnings this week; I expect these stocks to significantly outperform and post gains.

I am going to use $50,000 as my "earnings money" since it's an easy amount to divide in the way in which I will invest over the next week. I am looking at 5 stocks: Apple (NASDAQ:AAPL), Harley Davidson (NYSE:HOG), Travelzoo (NASDAQ:TZOO), Tempur-Pedic (NYSE:TPX) and McDonald's (NYSE:MCD). I believe these will provide large gains over the next week through earning reports. However, each present different levels of risk and reward, therefore, I will divide my $50,000 based on the stocks that I believe show the most upside with the least amount of risk.

Apple (AAPL) will announce earnings on Tuesday and is expected to announce $7.30 per share. Apple has exceeded expectations for more than 15 quarters in a row, with last quarter more than doubling income. The last time Apple announced earnings was on July 19, during which it beat expectations by more than 30%, lifting the stock to all-time highs above $400. The stock has since exploded, gaining more than 15% over the last 3 months, creating new highs. The stock has trended higher after record breaking sales for its new iPhone have encouraged investors that the future looks bright, despite losing the great Steve Jobs. The only issue that I see with the stock's current position is that it's trading at new highs. While I'm sure that a portion of the gains are in anticipation of strong earnings, it still worries me that earnings may already be priced into the stock. Yet the company has a proven history of exceeding expectations, and after considering its incredible sales of the new iPhone, I believe that guidance will be far above analyst's expectations. Therefore, I am investing $7,500 of my, pretend $50,000 into this stock because I believe it will rise on earnings. But because of its current price, I believe a 3-4% gain is likely, which is less than what I expect from others on the list.

Harley Davidson will announce earnings on Tuesday, and is expected to announce $0.76 per share. Harley Davidson has exceeded expectations 5 of the last 6 quarters, according to CNBC, with revenue growth of more than 15% and income that doubled during its last quarter. As a result of strong earnings in July, HOG posted a new 52 week high of nearly $47. The stock is currently priced under $38 after losing 10% of its value during the last 3 months. I am extremely optimistic that HOG will exceed expectations because of its oversees demand, higher demand in the U.S., and very low inventories to close the second quarter which should boost shipments as dealers restock the products. I believe the upside is particularly high, and that the stock is positioned for large gains, if it exceeds expectations; the stock that has fallen since the company last reported earnings. Therefore, I am investing $10,000 in HOG because I believe that it will not only post large gains after earnings are announced, but that it will continue to trend higher for the weeks that follow.

Travelzoo (TZOO) will announce earnings on Thursday and is expected to announce $0.34 per share. The company has exceeded expectations 6 of the last 7 quarters with its only disappointment coming during the last quarter, when Travelzoo missed earnings by $0.09 with $0.30. The company blamed the missed quarter on an unsuccessful advertising venture. However, I believe that the company's 33% gain in revenue, 50% gain in net income, and its expansion into more than 2 regions per week was nothing short of impressive. Yet the market did not share my enthusiasm, considering the stock has now dropped more than 65% since last quarter earnings were announced. The stock has lost so much of its value because it was trading at $80, posting 52 week highs over $100 after Q1 in April, which was remarkably high above its earnings. I believe the stock is now appropriately priced because at $80-$100 the stock was trading too high above earnings, which sets the investor up for loss when the company misses expectations, which is what led to its recent loss.

However it now presents a level of value and trades in an appropriate range considering its level of growth. I believe TZOO will post significant gains following its earnings report with limited downside and unbelievable upside. The company's last two quarters posted earnings of $0.37 and $0.30, therefore, I believe its $0.34 target is very attainable. And if the company were to exceed this target, it could very well post gains larger than its Q1 results when the stock rose from $70 to over $100. The company is still growing very fast, therefore, I am investing $10,000 before earnings, because I believe that if the company were to miss expectations, the worst case scenario is a 10% loss, but if it were to beat estimates then the gains could be tremendous, and considering its level of growth and expansion, I believe its $0.34 target will likely be surpassed.

Tempur-Pedic International will announce earnings on Thursday and is expected to post a record of $0.85 per share. Tempur-Pedic has been one of the fastest growing companies of the last 2 years with both strong domestic and international growth because of its innovating products. During the last quarter the company increased sales by 30%, while profit grew 58%, with international growth of 34%. The company has given investors every indication that it will continue growing by increasing guidance, repurchasing shares, and creating jobs. TPX has consistently beat expectations over the last 2 years which has resulted in gains of nearly 800% since January of 2009. Yet over the last 3 months the stock has lost 4% of its value and is trading more than $11 off its 52 week high, which was reached after the company announced earnings in July. I am investing $7,500 in the stock, because I believe it will easily exceed expectations and cover the $11 loss from its 52 week high.

McDonald's will announce earnings on Friday and is expected to post earnings of $1.43 per share, which would be a record. McDonald's has been the company of consistency as it has met or exceeded expectations each of the last 15 quarters, with its most recent quarter beating expectations by 5%. In July, when MCD announced earnings, the stock increased by nearly $3 and created new all-time highs. The stock is now trading near the same levels, as it's been unaffected by the sell-off within the market, gaining 5% over the last 3 months. It has a yield of more than 3% and has continuously trended higher over the last 5 years, despite economic events, which I believe places it in a category with only Apple as the best stock within the market. Therefore I am investing $15,000 in MCD before it announces earnings, since I am sure that it will either meet or exceed expectations, as it's done so many times in the past. MCD is trading less than $2 from its all-time high, and I believe it will surpass and create new highs as the McCafe service and global sales continue to impress.

Each of the 5 stocks that I have listed consistently outperform earnings and have given no reason for us to believe this quarter should be any different. Earnings season is a time in which I have always experienced a high level of success, and I believe that Q3 is presenting an opportunity of unprecedented value. There is a substantial amount of pessimism surrounding the market which has caused most stocks to trade lower, and although the market has recovered over the last week, most stocks are still lower than they were 3 months prior. Therefore, value is present, and if stocks such as the one listed above can be found, it's very possible to return large gain with strong earnings. I use a small portion of my portfolio to trade on earnings, and I believe that with due diligence and an understanding of market reaction to earnings, an investor can be successful in trading stocks before earnings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCD, HOG, TPX, AAPL, TZOO, GOOG, AA, JPM over the next 72 hours.

Additional disclosure: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy. The $50,000 value does not reflect the author's future investments but rather an example of how the author identifies risk and reward in each stock. All estimates and past performance was obtained from CNBC

Source: 5 Stocks Worth Buying On This Week's Earnings Reports