By Neal Rau
Earnings season is upon us again, and as the first companies start releasing their earnings we are going to offer investors a brief pre-earnings analysis of current and past quarters. Our focus will be on price, and how stocks might react after earnings reports based on the recent stock price changes.
We all know it is difficult to predict what a stock might do solely based on information released during earnings. Sometimes stocks go lower after beating estimates, and the reverse is true as well, so it is also important to factor in what smart money has been doing relative to the stock price.
This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock's move after earnings are released.
The following Companies report earnings on October 21, 2013:
Halliburton Company (HAL) is set to report on Monday, October 21, before the market open. The company is expected to report $0.82 per share for its third quarter of 2013, which would be a 22% increase in EPS compared to the same quarter a year ago. The stock is up almost 50% YTD, and near a 52-week high. The company has shown strong revenue growth and good cash flow from operations, however net income has been a weakness. Should investors buy, sell or hold at these levels?
Even if Halliburton is able to beat estimates on Monday, it does not mean the stock will continue to rise, as stock price matters. The stock is trading at two-year highs, and is close to testing long-term resistance. If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support. That would make HAL a sell/short at resistance, with risk controls in place if resistance breaks higher.
Hasbro, Inc. (HAS) is expected to report $1.29 per share for its third quarter, which is a 4% increase over the same quarter a year ago. Last quarter when the company missed analyst's estimates, shares pulled back about 6% over the month that followed and tested long support. The stock went on to make two-year highs in September, while increasing 10% off support. The company has a new Transformers movie planned for release in July, four Marvel films, and a new Star Wars TV series planned, which could be catalysts that move the stock higher. Should investors be buying shares of HAS ahead of earnings?
Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report, the stock has been moving closer to long-term support, but isn't there yet. By definition we prefer to buy near support levels when they are tested because that allows us to maximize our return. Our target is resistance and we want to get the complete oscillation from support to resistance, but it also helps us control risk, and that is the most important part. We would only be buyers near support and caution investors to be patient and not to chase the stock ahead of earnings.
McDonald's Corporation (MCD) is expected to report $1.51 for its third quarter of 2013, versus $1.43 the company reported the same quarter a year ago. The stock has underperformed the overall market so far this year, and is currently trading about 8% lower than the 52-week highs made in April. The company could see some upside from the Mighty Wings offerings, however the extended government shutdown could have also adversely affected restaurant spending. Should investors buy shares of MCD ahead of earnings?
Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report, the stock is moving closer to long-term support, but isn't there yet. If the stock continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support and caution investors not to chase the stock.
Navigating earnings can be tricky. Sometimes investors' earnings expectations are correct, but the stock actually does the opposite of what they think it should have done after earnings, so our opinion based on price can help investors make more well-rounded and sound investment decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.