Investors need to monitor stocks just 4 times a year: during earnings season. The only other reason to monitor a company is during a major price change along with an accompanying news event. A major drop represents a buying opportunity. Electronic Arts (EA) represents a buying opportunity. Chesapeake Energy (CHK) and OmniVision Technologies (OVTI) are stocks to buy following earnings results. Trina Solar (TSL) and Breitburn Energy Partners (BBEP) are both stocks to sell:
NAME | Call | AVG VOL | MKT CAP, $ |
Chesapeake Energy | Buy | 15,798,100 | 16.29B |
Electronic Arts Inc. | Buy | 7,839,350 | 5.61B |
Trina Solar Limited | Sell | 4,212,280 | 549.44M |
OmniVision Technologies | Buy | 2,539,760 | 999.88M |
BreitBurn Energy Partners | Sell | 818,037 | 1.15B |
Chesapeake Energy - Buy
Chesapeake continued its climb, closing recently at $25.45. In its earnings call, the company reported:
· Asset sales of $8.5B, with $437M gains appearing in income statement
· Positive cash flow of 3% in 2011,even with a drop in natural gas prices.
· A strategic shift away from 90% natural gas production in 2009 to oil
The company acknowledged negative analyst commentary against the company's capital expenditures. Chesapeake said that it aimed to be cash flow-positive by 2014, generating and to a place in $10 billion to $11 billion in cash flow in 2015. More importantly, management believes this can be accomplished with natural gas below $3.
Electronic Arts Inc. - Buy
EA shares continued its decline since trading at nearly $20 in early February. Strong earnings and investor interest for social networking game stocks pushed EA up. The bullish interest was not sufficient to reverse EA's bearish trading, a trend that began in November 2011, when EA was $25.
15 analysts cover EA, with an average price target of $23.71. With a closing price of $16.93, EA offers up to 40% upside.
Trina Solar Limited - Sell
The solar energy sector remains in freefall. Excess inventory and sharply reduced government support is forcing the industry to consolidate, and for weaker companies to exit the market. Trina Solar is a company to avoid. In its earnings call, the company pointed to a focus on China, Europe and the United States. The company also looked to improve margins with its new Honey technology-based modules.
Weaknesses in Trina were found from lower average selling prices, resulting in a drop by 40% for gross profits to $31M. The company forecast that operating expenses will increase by 21.6% to $93.9M due to cost control measures taken in the quarter. For the quarter, the company reported a $65.3M loss, or negative $0.93 per share. The company has $896M in restricted cash, well above its market capitalization of $543.97M. The outlook expected to continue to be difficult, so investors should avoid Trina Solar.
OmniVision Technologies, Inc. - Buy
Speculators who bid OmniVision shares up prior to earnings were rewarded last week. OmniVision traded as high as $18.60 before closing at $17.13, up 6.53% on February 17. In its earnings call, the company reported revenue of $185M, non-GAAP gross margins of 24.7% and non-GAAP earnings of $7.4M (or $0.14 per diluted share). Investors bid shares up because revenue was at the high end of guidance.
OmniVision is a stock to buy, with preference for a pullback as an entry point. Mobile sales dropped to 52% of total sales, from 60% in the previous quarter. The company cited strength for notebooks, but industry growth is strongest in the mobile space. Still, the company forecast fourth fiscal quarter revenues in the range of $195M - $215M and non-GAAP EPS between breakeven to $0.13 per diluted share.
BreitBurn Energy Partners - Sell
Despite increasing cash distribution to $0.45 per quarter for a yield of 9.27%, investors might want to reduce a position in BreitBurn. Legendary investor Seth Klarman sold his entire position in the company by December 31 2011.The company issued 8 million shares for $18.80 per unit. BreitBurn closed recently at $19.41 and will be reporting earnings on February 28 2012.
Disclosure: I am long (EA).
