This week starts the fourth quarter. It's a big week for economic data and the US economy will be put to the test. But we're also just a few weeks away from earnings season. The third quarter is over, and that means it's now time to think about how earnings did. Most of the major names are still weeks away from reporting, but that doesn't mean we won't get any important information to impact our decisions before then. Here are five stocks to definitely watch this week.
I don't think the mapping fiasco is over yet, despite the public apology from Apple CEO Tim Cook last week. While Apple is looking to improve Maps, Cook recommended several alternatives, including Google Maps. Hopefully, Apple can put this issue in the rear view mirror soon, and get back to doing what it does best, selling high quality products. Remember, Apple had a similar issue with its phone antenna a few years ago. That issue faded after a while, and many probably even forget at this point that it occurred.
Apple shares took a hit last week, dropping almost five percent. The mapping issue seemed to be a problem, but investors also focused on the five million iPhones sold in the opening weekend. That seemed to be a disappointment, but it also appears that the five million count did not include iPhones ordered online, but not delivered yet. Should those phones not be delivered until October, they won't count in Apple's Q4 results, which could cause Apple's numbers to look weak. However, they will be sold in Q1, bumping up that quarter's numbers. We've also heard rumors that Apple can't meet demand for the new phone. Is that an attempt to drive purchases into Q4, or are there really supply constraints due to Apple suppliers having production issues?
As for Google, shares have risen to new highs lately, and Google is very close to passing Microsoft (NASDAQ:MSFT) in terms of market cap. Google shares rose nearly $175 in the third quarter, a rise of 30%. That is truly incredible for a name that has struggled to gain any traction in recent years, especially above the $650 level. Remember, Google's numbers now include the Motorola Mobility acquisition, so when you see analyst estimates for nearly 60% revenue growth in the quarter, don't be surprised. The interesting thing to see is how Google's margins do, as they took a hit in Q2, the first quarter that included Motorola Mobility results. This new business line could be a lower margin one, which would change the Google analysis going forward.
With the huge rise in Google shares, Google now stands at $754, just $18 from the current analyst average price target, and the median target is just $751. I guess analysts are waiting to see another quarter from Google before they change their opinions, but currently, they don't see much more upside in the name. On the flip side, Apple currently trades for $667, with both the mean and median price targets at $780, representing a fair amount of upside from here.
With the recent events and share price movements, I would use this opportunity to sell Google and buy Apple if you can. I believe Apple is in a much stronger position, and I think Google will see a bit of margin declines going forward, more so than Apple could see. Google shares have had a nice run lately, but I don't see a ton of upside remaining. Meanwhile, Apple has come $40 off its 52-week high, and any further declines should be taken advantage of. People are not going to avoid the iPhone 5 because of the Maps issue. Apple still is selling plenty of iPhones, and for that reason, you must be long the name.
Netflix shares have continued to decline as competition grows by the week. Shares have tested their 52-week low a few times recently, and closed Friday less than $2 from that mark. If any more Netflix-negative news comes out this week, it would not surprise me to see shares not only break the 52-week low, but they could fall below the $50 mark as well. Remember, this is a stock currently trading at 60 times 2013 expected earnings, a lofty valuation for a company not making any money and not increasing revenue at the lofty rates it was in recent years. If the short sellers get this name under their control again, it will not be pretty.
But we've also seen a number of Netflix pre-earnings rallies in the past (unfortunately, they've lead to collapses after earnings). Some of the rallies were just pure short covering, and other times we've seen news come directly from the company. Would anyone be surprised if the company, or CEO Reed Hastings, came out bragging about September hours viewed, or something like that? News like that has pushed up shares at least $10 in recent times, so if something like that happened, it would not shock me to see shares back at $65 within two weeks.
Sprint shares hit a new 52-week high recently, but have been unable to hold the $5.75 level at this point. Expectations are that the iPhone 5 has sold very well, and if Sprint can break through $5.75 for more than a few minutes, shares appear to be heading to $6.00.
Sprint shares backed off a little on Friday, partly with the market, but also after Clearwire shares dropped on news that Time Warner (NYSE:TWX) was selling its stake in Clearwire. Sprint still maintains a huge debt and equity investment in Clearwire, along with the added reliance on Clearwire's spectrum. With the drop on Friday, Clearwire shares are at their lowest point in two months. After a strong rally put Clearwire shares almost at $2, they have fallen 60 cents since.
Clearwire shares are up 20% for the quarter, so it will be interesting to see what happens to Sprint's investment in the firm. Remember, Sprint has recorded billions in losses due to Clearwire, which has really hurt net income in prior periods. Should Sprint not have any Clearwire-related losses this quarter, that could help Sprint's numbers. Sprint could take a margin hit with a ton of iPhone sales, but the company has turned things around, which is why shares have more than doubled from their 52-week low. Sprint (and Clearwire) are not out of the woods yet, but the picture certainly looks a lot better than it did six months ago.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL, NFLX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.