5 stocks to watch for next week

Alcoa and Family Dollar to report earnings. Oil breaks above the $100 mark. Honda teams up with General Motors. Retail sector to report June chain store sales.

By MSN Money Partner Jul 5, 2013 11:31AM

Trading floor (© Image Source/SuperStock)By Michael Fowlkes, InvestorsObserver


Alcoa reports earnings Monday

What's happening: Wall Street bellwether Alcoa (AA) will report its second quarter results after the market closes on July 8. With aluminum prices weak, 2013 has not been a very good year for the stock, which has lost 9.5% year to date. Analysts estimate Alcoa to report earnings of $0.10 per share in the quarter. When the company reported its first quarter results, it beat earnings estimates, but revenues came in under expectations.


Technical analysis: AA was recently trading at $7.80, down $2.13 from its 12-month high and just $0.09 above its 12-month low. Technical indicators for AA are bearish and the stock is in a weak downward trend. The stock has resistance under $8.50. Of the 15 analysts who cover the stock three rate it a "strong buy," two rate it a "buy," six rate it a "hold," and four rate it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Alcoa issued a positive outlook when it reported its first quarter results, and now we will see whether or not that positive outlook has resulted in improved operations. I find it hard to believe that the results are going to be very pretty. Aluminum prices remain weak and are unlikely to recover over the next 18 to 24 months. I expect the company to miss its earnings forecast and shares to trade lower.


Stock-only trade: Expecting weakness in the company's earnings report, I would not recommend setting up a long stock position on the Alcoa at the current time.


Option trade: If you are looking for a hedged options trade on AA, consider a September 6/7 bull-put credit spread for a 12-cent credit. That's a potential 13.6% return (110.6% annualized*) and the stock would have to fall 7.5% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $6 call. If AA rises just 4.1% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.



Oil prices break through $100 a barrel

What's happening: Oil prices have been trending higher since the middle of April but have really made a strong move over the last few weeks, breaking through the psychological $100 a barrel mark. ConocoPhillips (COP) shares have traded in a fairly tight sideways pattern since the start of the year but have been showing strength over the last two weeks with surging higher oil prices. The stock is currently up 8.9% year to date.


Technical analysis: COP was recently trading at $61.79, down $2.98 from its 12-month high and $8.95 above its 12-month low. Technical indicators for COP are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $60.25, and resistance below $63.00. Of the 17 analysts who cover the stock seven rate it a "strong buy," one rates it a "buy," five rate it a "hold," two rate it a "sell," and two rate it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Oil prices have been strong in recent weeks, mainly as a result of civil unrest in Egypt. Egypt does not produce a material amount of oil, but where the country does control the Suez Canal and pipeline, which transports around 4 million barrels of oil a day. The Middle East and North Africa account for roughly one-third of the world's total oil, and any unrest in Egypt has the potential to disrupt output of the entire region. In addition to what is going on in Egypt, an improved global economy, growing appetite for oil by the U.S. and lower supplies have resulted in a 16% jump in crude in the last two months. If oil continues to move higher, all the major oil companies, including ConocoPhillips, will show strength.


Stock-only trade: If you're looking to establish a long stock position in COP, consider buying the stock under $61.50, and sell if it falls below $57.50 or take profits if it gets to $70.50.


Option trade: If you are looking for a hedged options trade on COP, consider an August 55/57.50 bull-put credit spread for a 30-cent credit. That's a potential 13.6% return (110.6% annualized*) and the stock would have to fall 5.9% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $60 call. If COP rises just 3.5% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.



Honda teams up with General Motors

What's happening: Japanese automaker Honda Motors (HMC) has announced plans to team up with General Motors (GM) to work on hydrogen-powered cars. It has been a rocky year for Honda, with the stock making slow gains during the first few months of the year but then giving the majority of those gains back over the last few weeks. With the recent reversal of fortune for the yen, there has been weakness in the stock and its year to date gain is just 2.2%.


Technical analysis: HMC was recently trading at $37.77, $4.36 below from its 12-month high and $9.27 above its 12-month low. Technical indicators for HMC are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $35.50 and resistance under $40.00. The stock gets a "strong buy" rating from the one analyst who covers it. The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Teaming up with General Motors to work on hydrogen cars is a smart move by Honda. The market is ready for an affordable alternative energy vehicle, and by working in tandem with General Motors, Honda will be able to lower the monetary risk of dumping huge amounts of money into research and development and take advantage of patents that General Motors already has. General Motors holds the largest number of patents in the technology, with Honda coming in second. Another advantage of the collaboration is that together GM and Honda will have greater influence on pushing for more hydrogen fuel stations. Currently there are very few such stations. The more fueling stations that pop up the easier it will be for manufacturers to sell such cars.


Stock-only trade: If you're looking to establish a long stock position in HMC, consider buying the stock under $38 and sell if the stock drops under $35.50 or take profits if it gets to $42.


Option trade: There are no hedged option trades that we like on HMC at the current time.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $35 call. If HMC rises just 3.8% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.



June chain store sales due Thursday

What's happening: The entire retail sector will react to June's chain store sales figures due for release on July 11. With the U.S. economy continuing to recover, retailers have been strong. Macy's (M) has been enjoying a strong year thus far, with the stock trading up a stellar 25.3% year to date.


Technical analysis: M was recently trading at $48.40, down $1.60 from its 12-month high and $16.09 above its 12-month low. Technical indicators for M are bearish and the stock is in a strong upward trend. The stock has support above $46.00 and resistance under $49.50. Of the 15 analysts who cover the stock seven rate it a "strong buy," one rates it a "buy," and seven rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Results for chain store sales in May were strong, and I expect another strong showing in June. Unemployment has been falling, and combined with improvements in the housing market, consumers have gained confidence, leading to strength in all the major retailers. Macy's has been one of the stronger performers, and if June results are indeed solid, there is no reason to expect Macy's stock to weaken over the summer months.


Stock-only trade: If you're looking to establish a long stock position in M, consider buying the stock under $48, and sell if it falls below $44 or take profits if it gets to $55.


Option trade: If you are looking for a hedged options trade on M, consider an August 40/44 bull-put credit spread for a 35-cent credit. That's a potential 9.6% return (77.8% annualized*) and the stock would have to fall 8.4% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $45 call. If M rises just 4.9% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.



Family Dollar unveils earnings Wednesday

What's happening: Discount retailer Family Dollar (FDO) will report its fiscal third quarter results before the market opens on July 10. Analysts are expecting earnings of $1.04 per share. The company is trying to redeem itself after a dismal second quarter, which came in below analyst estimates. In addition to missing analyst forecasts for the quarter, Family Dollar also lowered its full year guidance, the second time it did so this year. The stock has been in a fairly tight sideways pattern for the past three months, and year to date the stock has managed to trade up a mere 0.7%.


Technical analysis: FDO was recently trading at $63.32, down $9.22 from its 12-month high and $9.26 above its 12-month low. Technical indicators for FDO are bearish and the stock is in a weak downward trend. The stock has support above $60.00 and resistance under $64.50. Of the 19 analysts who cover the stock six rate it a "strong buy," 11 rate it a "hold," one rates it a "sell," and one rates it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Coming off the company's disappointing second quarter results, it desperately needs to at least match analyst estimates for its fiscal third quarter results. During the recession, dollar stores were one of the top performers, but with an improving economy they have found it difficult to maintain the same strength as improved consumer confidence has resulted in a shift in consumer habits back to more traditional retailers. There are some positives to Family Dollar's business. Sales were up 18% last quarter, and the company continues to open new stores at a blistering pace. If the company is able to post better than expected numbers, Wall Street may start to focus on the positives and push the stock higher. But another miss will put a big pressure on the stock.


Stock-only trade: If you're looking to establish a long stock position in FDO, consider buying the stock under $63, and sell if it falls below $58 or take profits if it gets to $72. If you set up a new position in the stock, be sure to pay close attention to the earnings report, and be ready to pull the trigger if the numbers disappoint.


Option trade: If you are looking for a hedged options trade on FDO, consider an August 55/57.50 bull-put credit spread for a 30-cent credit. That's a potential 13.6% return (110.6% annualized*) and the stock would have to fall 8.3% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $60 call. If FDO rises just 3.4% you can pull in a 20% or better profit on the option. However, if the stock moves lower, this kind of trade could lose a significant amount.



*Annualized returns provided for comparison purposes only


Get InvestorsObserver's free report 18 Warning Signs to Know When to Dump a Stock


At the time of writing, Mr. Fowlkes does not have direct ownership in any of the other stocks mentioned.

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.