3 Stocks Outperforming The Market To Buy And 2 Underperforming Stocks To Sell

Includes: F, HD, JPM, KO, TRIP
by: David Ristau

This article will give you five trading ideas to attack the market. Right now, we are in a tough marketplace that makes it challenging for traders/investors to know how to make money in this market. Today, we have outlined five trades for you that we believe can help make you successful. We have used a combination of fundamental analysis with technical setups to identify these companies, paying careful attention to recent earnings. For our long ideas, we identified companies that had strong recent earnings reports and appeared to have good value that could buck the trend of the market. We combined that with technical setups looking for breakout points or points of support. For the shorts, we looked at stocks that were not performing well under current market conditions and identified bellwethers that would continue to breakdown as the market weakens. We used technical setups as well for them looking for specific points of weakness and resistance.

Stocks To Trade

Today, we are looking at an earnings trade in JP Morgan & Chase (NYSE:JPM), longs in TripAdvisor (NASDAQ:TRIP) and Home Depot (NYSE:HD), and shorts in Ford Motors (NYSE:F) and Coca-Cola (NYSE:KO).

For an earnings trade, we are looking at JPM today. JPM's latest earnings report in October was decent considering the massive loss from the "London Whale," and the company's next quarter looks to improve even more. The company's Q4 report is expected to show an 11% increase in revenue and 30% increase in earnings. The company announced last week that it would start buying back shares again, and we believe that the stock looks solid, fundamentally, headed into the end of year and 2013. Yet, the recent market weakness has caused financials to get hit hard! JPM broke support at 40 and has been weak. It does, however, have the 200-day MA below it for support, and we believe that this downside is a great chance to jump into JPM with a bull put spread for Dec22. Further, the recent weakness has created some solid premium on prices on options that are very far down and are unlikely to be hit.

Trade: JPM, Dec22, 36/34 Bull Put Spread

Max Gain: 12%

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For longs, we like the looks of TripAdvisor and Home Depot. Despite a very weak earnings season and rough market conditions, these are two stocks that report very solid earnings and are outperforming. We believe both stocks will continue to outperform the market, and we like TRIP for an equity play on a break of the 200-day MA resistance. HD looks better suited for a bull put spread. TRIP has been coiling below 36.00, and we believe a break of 36.00 and the 200-day MA will cause a major move higher. TRIP's earnings showed good growth in revenue and earnings, and the company has been performing well since the earnings report. The company has finally been able to turn their popular website into solid ad revenue, which was questioned in their Q2 report. HD also had good earnings that showed solid growth due to the housing recovery and looked very solid in their guidance. The company, further, will benefit as a Superstorm Sandy play as cities along the East Coast rebuild. The company broke out from 60, and it has lots of support below it. We like the 57.50/55 bull put spread as we do not expect HD to break down with the latest round of earnings showing such great support.

  • Equity Trade: TRIP, Long
  • Breakout Point: Break of 200-Day MA
  • Options Trade: HD, Dec22, 57.50/55 Bull Put Spread
  • Max Gain: 18%

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For shorts, we like the looks of Ford Motors and Coca-Cola. Ford has been weakening with the general market and looks like it could break a very important support line at 10.50. A break of that level would signal a short for the stock. Ford Motors had a strong quarter for Q3, and we do see the stock as undervalued. At the same time, the 200-day MA and 10.50 have been holding since that report. If the stock loses those levels, we could see a bevy of sellers and shorts enter the stock. Watch that level for a potential short. Ford tends to get hit hard by the market weakness as its considered a bellwether for the economy. KO continues to look very weak since their latest report, and we believe they are perfect for a bear call spread. The stock has been declining since their latest report showed global weakness and currency issues with dollar strength. The 38-39 area has been strong resistance, and we like using that area to make money by selling premium on the stock. The market could bounce back, but even so, KO was underperforming before that report. With a lack of catalyst, there is no reason to expect a move to the upside of any strong measure.

  • Stock Trade: F, Short
  • Breakout point: Break of 10.50
  • Options Trade: KO, Dec22, 37.50/40 Bear Call Spread
  • Max Gain: 5%

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The Oxen Group is a team of analysts. This article was written by David Ristau, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.