5 stocks to watch next week

Coke, Mattel and Chipotle to report earnings. Oil hits a 14-month high. ADT rumored to be an investment target of Bill Ackman.

By MSN Money Partner Jul 12, 2013 11:21AM

Stock index © Image Source, Getty ImagesBy Michael Fowlkes, InvestorsObserver


Coca-Cola reports earnings Thursday

What's happening: Soft-drink giant Coca-Cola (KO) will be reporting its second quarter results on July 18, with analysts expecting earnings of $0.63 per share. After getting off to a very strong start to the year, the stock ran into trouble during the first half of June before finally finding support and moving higher. Even with the selling pressure that hit the stock during June, it has managed to gain 13.8% year to date.


Technical analysis: KO was recently trading at $40.68, down $2.75 from its 12-month high and $5.10 above its 12-month low. Technical indicators for KO are bearish and the stock is showing signs of a possible trend reversal. The stock has resistance under $42.00 and support above "$39.00." Of the 15 analysts who cover the stock nine rate it a "strong buy," one rates it a "buy," and five rate it a "hold." The stock receives Standard & Poor's 5 STARS "Strong Buy" ranking.


Analyst's thoughts: The company outpace analyst earnings estimates by a penny in the first quarter. Revenues, however, were slightly under expectations at $11.04 billion, versus analyst estimates for $11.05 billion. Coca-Cola has been dealing with consumers moving away from sugary soft drinks in the U.S., but it continues to grow internationally, and I see little reason to expect disappointing numbers in its second quarter.


Stock-only trade: If you're looking to establish a long stock position in KO, consider buying the stock under $41, and sell if it falls below $39 or take profits if it gets to $46.


Option trade: If you are looking for a hedged options trade on KO, consider a September 35/38 bull-put credit spread for a 25-cent credit. That's a potential 9.1% return (46.1% annualized*) and the stock would have to fall 6.0% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $38 call. If KO rises just 3.6% 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 continues to rise, hits a new 14-month high

What's happening: BP (BP) sold off in the latter part of June, but with oil prices moving higher the stock has rebounded over the last week. Oil has recently traded at $107.45 a barrel, which is 11.3% higher from the end of June. With the recent run-up in oil prices, shares of BP have been moving higher over the last week and are currently up 4.5% year to date.


Technical analysis: BP was recently trading at $42.26, down $2.99 from its 12-month high and $3.04 above its 12-month low. Technical indicators for BP are bearish and the stock is showing signs of a possible trend reversal. The stock has resistance under $43.25. Of the 14 analysts who cover the stock six rate it a "strong buy," one rates it a "buy," six rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: The recent surge in oil has been impressive, but I am not sure how much additional upside remains at the current time. We can always expect to see strength in the precious crude during the high demand summer months, but this summer has been more extreme because of unrest in Egypt and the improving U.S. economy. Since the start of the unrest in Egypt, oil prices have risen over 7%, and once stability, in whatever form it eventually takes, returns, it will give back some of the gains. BP investors should enjoy the recent jump in the stock and expect to see stability in the latter part of the year but not huge gains over the next six months.


Stock-only trade: If you're looking to establish a long stock position in BP, consider buying the stock under $42, and sell if it falls below $40 or take profits if it gets to $45.


Option trade: If you are looking for a hedged options trade on BP, consider an August 38/40 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (109.6% annualized*) and the stock would have to fall 4.9% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $40 call. If BP rises just 2.9% 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.



Mattel reveals Q2 Wednesday

What's happening: Toy and game maker Mattel (MAT) will report its second quarter results on July 17. Analysts are expecting to see earnings of $0.31 per share. The company reported strong quarterly results in April, with its profit jumped 83% year to date. MAT stock has been strong since the start of the year and is currently up 30.0% year to date.


Technical analysis: MAT was recently trading at $46.83, down $1.65 from its 12-month high and $16.09 above its 12-month low. Technical indicators for MAT are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $44. Of the 11 analysts who cover the stock seven rate it a "strong buy," one rates it a "buy, and three rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: I expect another strong report from Mattel when it releases its Q2 results. Mattel has licensing deals with some of the biggest movie brands, Superman being one of them. With a new Superman movie out this summer, Mattel will get a nice boost in sales of toys related to the movie franchise. The company's biggest competitor is Hasbro (HAS), which is trading at a slightly better price-to-earnings ratio than Mattel, so we could see some selling in Mattel if earnings come in light, but I do not see too much downside risk in the stock going into its quarterly report.


Stock-only trade: If you're looking to establish a long stock position in MAT, consider buying the stock under $46.50 and sell if the stock drops under $44 or take profits if it gets to $51.50.


Option trade: If you are looking for a hedged options trade on MAT, consider an August 40/44 bull-put credit spread for a 35-cent credit. That's a potential 9.6% return (94.6% annualized*) and the stock would have to fall 5.3% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $44 call. If MAT rises just 2.7% 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.



Chipotle unveils Q2 results Thursday

What's happening: Fast-food chain Chipotle Mexican Grill (CMG) will report its second quarter results on July 18, with analysts expecting earnings of $2.81 per share. After the company shattered analyst estimates for the previous quarter the stock make a big move to the upside. The stock got stuck in a sideways pattern during May and June but has started moving higher in July. Year to date, the stock is up 29.4%.


Technical analysis: CMG was recently trading at $384.78, down $19.81 from its 12-month high and $150.96 above its 12-month low. Technical indicators for CMG are bearish and the stock is in a weak upward trend. The stock has support above $360.00. Of the 23 analysts who cover the stock 10 rate it a "strong buy," 12 rate it a "hold," and one rates it a "sell." The stock receives Standard & Poor's 2 STARS "Sell" ranking.


Analyst's thoughts: Chipotle has been one of the most successful fast food chains in recent years, and I see little reason to believe it will disappoint investor when it reports its second quarter results. Last year the company had a 12% jump in same store sales, and its profit margin was up 110 basis points from the previous year at 27.1%. Chipotle has a very small international presence, with just 12 locations open outside of the U.S., so there is still plenty of room for growth, setting up a strong future for CMG shareholders.


Stock-only trade: If you're looking to establish a long stock position in CMG, consider buying the stock under $380, and sell if it falls below $355 or take profits if it gets to $415.


Option trade: If you are looking for a hedged options trade on CMG, consider an August 325/330 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (109.6% annualized*) and the stock would have to fall 14.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the September $375 call. If CMG rises just 4.8% 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.



ADT rumored to be target of William Ackman

What's happening: Activist investor William Ackman is once again the news, having recently announced plans to invest $3 billion in a U.S. company in the near future. While Ackman has not mentioned any company in particular, ADT Corp. (ADT) is among the short-list of companies that Wall Street believes could be the one. The stock had been a downward trend since the beginning of April, but rose sharply on the rumors. With the recent move the stock is currently down 7.8% year to date.


Technical analysis: ADT was recently trading at $42.62, down $7.75 from its 12-month high and $7.24 above its 12-month low. Technical indicators for ADT are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $39.00. Of the six analysts who cover the stock three rate it a "strong buy," and three rate it a "hold


Analyst's thoughts: While there are reasons to believe that ADT could be the company that Ackman chooses for his investment, it is too risky for traders to get in right now. ADT has several of the characteristics that Ackman is looking for, but at this point it is all speculation, and if Ackman chooses a different company such as FedEx (FDX) or Time Warner Cable (TWC), the ADT is going to quickly give back all its recent gains.


Stock-only trade: With the recent move coming purely in reaction to market rumors, I would not set up a stock-only trade at the current time.


Option trade: If you are looking for a hedged options trade on ADT, consider an August 35/38 bull-put credit spread for a 30-cent credit. That's a potential 11.1% return (109.6% annualized*) and the stock would have to fall 10.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $40 call. If ADT rises just 6.0% 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


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At the time of writing, Mr. Fowlkes owns stock in Coca-Cola (KO) and BP (BP), and does not have direct ownership in any of the other stocks mentioned.

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