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, NicholsToday (621 clicks)
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Last week turned out great for returning gains, as 4/5 picks were correct, and the total return was more than 11%. In week 3 we will be starting with $21,592, and I am optimistic that this week will return a similar level of gains as week 2 with several fast growing companies announcing quarterly results. In addition, we've now had two weeks to watch the market and identify trends of earnings, for example which industries are performing well and which are not. With that being said, let's review week two and head into this upcoming week's picks and determine which company's will exceed expectations.

Week Two Review

CompanyTicker$ SpentBuy PriceSell PriceReturnGain/Loss
Apple(AAPL)$3,800$422$447.10$4,026$226
McDonald's(MCD)$3,838$101$99.38$3,776($62)
Caterpillar(CAT)$4,110$105.50$112.40$4,383$273
Netflix(NFLX)$3,884$92.48$116.92$4,910$1,026
Tepur-Pedic(TPX)$3,859$60.30$70.28$4,497$638
$19,491 $21,592$2,101

In week three I am investing $21,592 as a result of the $2,101 gains in week two. I think that week three has several fast-growing individual companies that could return large gains, but I believe the market itself may prove to be a challenge. All eyes will be on Greece and its debt deal, there's also been data to reflect slower than expected growth.

It's very possible that with the market trading near 52 week highs that it could take a large catalyst to push the market any higher. Therefore, I expect volatility and my strategy of buying stocks several days before earnings may not be the best method in week three. My strategy will be to buy stocks when the market is trading with a loss and sell when it trades with gains, which should increase the likelihood of gains in week three. I'm also playing this week safe, and buying stocks that I believe are presenting value and are growing faster than what analysts predict with several having lowered guidance. With that being said, below are the six stocks that I will buy in week three ahead of earnings.

There's no doubt that the optimism surrounding Chinese internet companies has faded over the last year. But one Chinese internet company that I like heading into earnings is Baidu (BIDU), which is basically a "mini-Google" with a very similar layout and even better growth. The company is scheduled to announce earnings on Monday with an EPS of $0.89 and revenue expectations of $698.9 million. The company has grown at a remarkable rate over the last few years, beating earnings expectations for the last 11 quarters. And although I am near certain that BIDU will beat, or meet, expectations I don't know that it will exceed estimates by a large enough margin to return gains. Up until its recent quarter the company had exceeded expectations by very large margins on a consistent basis, but last quarter it only beat expectations by $0.01, which could mean analysts are catching up with its growth. Either way it's one of the better Chinese internet companies and is trading with a 20% loss during the last 6 months. And with so much excitement surrounding the upcoming Facebook IPO I believe internet stocks will trade higher during this upcoming week. Therefore, I purchased $3,000 worth of shares on Friday, and because of its price action I've already returned a 3% gain, which makes the likelihood of this being a good choice even better.

Here lately there's been a lot of negative attention surrounding the profit margins of Amazon (AMZN) along with the valuation of the company. Back in November I called for AMZN to be the next momentum stock to fall, and although I do anticipate future loss as a result of its high valuation I don't believe it will occur right now. In fact, the company's expectations are very low, and its invested a lot of money into future growth and expansion. We already know the holiday season was strong and I am confident that Amazon capitalized on high sales and will post both record revenue and better income. The company's expected to post an EPS of $0.19, which is significantly lower year-over-year. But with lower guidance comes lower expectations and I think the company can deliver and trade higher following earnings. Therefore, I will be investing $3,000 into shares of AMZN prior to the company reporting on Tuesday.

This week I am buying two stocks that investors may believe are risky: Amazon and Green Mountain Coffee Roasters (GMCR). Green Mountain will announce earnings on Wednesday and is expected to post EPS of $0.36. The company's beat expectations in 10/11 of its last quarters, with the exception of its most recent. We all know about the concerns surrounding this company, but because of such strong results form NFLX I think that this stock could possibly trade higher after earnings, with the trend of this falling stock trying to change. The company's last quarter results weren't bad, revenue grew nearly 100% and net income grew 180%, but because of so many questions surrounding its accounting and supply issues the stock traded lower. K-cup sales should be strong after Starbuck's (SBUX) data was solid. However, I think this position must be small with so many variables involved that could affect your weekly return if earnings are a miss, therefore I am investing $3,000 into GMCR prior to earnings.

Mastercard (MA) is one of my favorite companies in the market for future growth. The company has met or exceeded expectations during each of its last 7 quarters and is now expected to post an EPS of $3.93 on Thursday when it reports. Mastercard has been the fastest growing consumer financial company and has done a good job at implementing revenue producing changes ahead of its competition. The strong sales over the holiday season should reflect higher electronic payments especially considering the growth of online consumerism. Yet, the company's most exciting growth potential comes from oversees which has been a catalyst for growth that I expect to only get stronger. Overall, I think MA is a near guaranteed performer, especially considering its recent pullback. Therefore, I am purchasing $5,000 worth of MA prior to its earnings report on Thursday.

Tractor Supply Company (TSCO) may be the most underrated fast growing company in the services sector. And when it comes to outperforming expectations, TSCO is one of the best, and has exceeded or met expectations for the last three years. TSCO has very high expectations of $0.92 per share for its upcoming report on Wednesday. Yet because of demand in agriculture and the success of its brands I believe the company will exceed expectations and trade higher. I consider this to be a safe investment: The stock trades with less volatility than the market and very little volume considering its growth and valuation. Therefore, I consider it to be safe and considering its recent history it should perform well following its earnings report which is why I'm purchasing $4,000 worth of shares prior to earnings.

I am quite optimistic regarding the future of the Dow Chemical Company (DOW) because of strong growth in several of its largest segments. The stock's performed well year-to-date after losing significant value over the last 6 months of 2011. The company's been somewhat inconsistent over the last year but with expectations being only $0.30 per share I think its goal is easily achievable. Despite the questions surrounding the company's future performance it has significantly increased margins, revenue, and earnings year-over-year. The company has steadily improved earnings, by a large margin, each of the last three years; and with natural gas being so low I think the chemical company will benefit and surprise its doubters with strong growth in emerging markets. Therefore,I am investing $3,600 in DOW and believe it's results on Thursday are a near guarantee.

Week three doesn't have the name power that week two provided, nor does it have companies announcing earnings with the same level of growth. I a bit concerned about the weekly market performance of week three with debt negotiations taking center stage along with data that could be less than stellar. In my opinion, the week three picks are a perfect balance to provide gains. Some may believe that GMCR and AMZN are too dangerous of investment. But I expect for the strength of MA, TSCO, BIDU, and DOW to overshadow any potential weaknesses in my riskier selections. However, with guidance being so low with several of my selections I think these stocks could surprise analysts and potentially return gains better than the 11% return in week two.

Source: Stocks Worth Buying Before Earnings Week 3: January 30 - February 3

Additional disclosure: All information regarding earnings results, earnings expectations, and history of performance was obtained from CNBC.