5 stocks to watch next week

Netflix, PulteGroup and Zynga report earnings. Tesla sells off on Goldman report. Bally Technologies buys a big competitor to gain traction in Asia.

By MSN Money Partner Jul 19, 2013 10:47AM

Wall Street sign (© Comstock Images/age fotostock)By Michael Fowlkes, InvestorsObserver


Netflix reports earnings Monday

What's happening: Video streaming site Netflix (NFLX) will report its second quarter results on July 22. Wall Street is expecting earnings of $0.41 per share. Netflix has been one of the best turnaround stories over the last year. After a series of poor management decisions late in 2011, after which the stock sold off sharply, Netflix shares have rebounded nicely since. In 2013 the stock gained 181.3% to date.


Technical analysis: NFLX was recently trading at $260.48, down $5.89 from its 12-month high and $207.67 above its 12-month low. Technical indicators for NFLX are bullish and the stock is in a strong upward trend. The stock has support above $244.00. Of the 26 analysts who cover the stock six rate it a "strong buy," 15 rate it a "hold," two rate it a "sell," and three rate it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: With the recent run up in the stock, NFLX has become very expensive, with shares trading at a price-to-earnings ratio in excess of 645. At this level, it is hard to get behind the stock, but I believe there is still some additional upside. The company's business is strong. It is adding subscribers, and it has made a significant push into original programming. If the company has a strong second quarter we could see the shares trade up towards its all-time high of $295.


Stock-only trade: If you're looking to establish a long stock position in NFLX, consider buying the stock under $260, and sell if it falls below $240 or take profits if it gets to $295.


Option trade: If you are looking for a hedged options trade on NFLX, consider an August 205/210 bull-put credit spread for a 75-cent credit. That's a potential 17.6% return (207.8% annualized*) and the stock would have to fall 19.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $245 call. If NFLX does continue its recent upward move and closes in on its all time high of just shy of $300, you can make a hefty profit on this trade. However, if the stock moves lower, this kind of trade could lose a significant amount.



Tesla Motors shares slide on Goldman call

What's happening: Electric car maker Tesla Motors (TSLA), which has been one of the hottest stocks in the market this year, ran into a little selling pressure after an unfavorable price target from Goldman Sachs. The research firm cited "sustainability of demand longer term" as its biggest concern, and set a price target of $84 for its shares. The stock closed at $127.26 the day before the new price target was set, and it instantly dropped 14% the following morning. Even with the recent sell off, the stock is still trading up 222% year to date.


Technical analysis: TSLA was recently trading at $109.05, down $24.21 from its 12-month high and $83.53 above its 12-month low. Technical indicators for TSLA are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $94.50. Of the 11 analysts who cover the stock four rate it a "strong buy," three rate it a "buy," three rate it a "hold," and one rates it a "sell."


Analyst's thoughts: I still like the stock, but I agree with Goldman that perhaps the recent run up in shares has been a little overdone. The company has proven it can turn a profit making a relatively small number of electric cars, but there are serious concerns over the long-term demand. While I believe there are risks in the stock, I do not see too much additional downside at the current time. Wall Street loves the stock and I believe the recent selling will be seen as a buying opportunity.


Stock-only trade: With the recent run up in the stock's price I would take a very conservative approach to setting up a stock-only trade at the current time. Keep an eye on the stock, and jump in if it drops under $90, and sell if it falls below $80 or take profits if it gets to $115.


Option trade: If you are looking for a hedged options trade on TSLA, consider an August 80/85 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (130.8% annualized*) and the stock would have to fall 21.6% to cause a problem.


Speculative call-only trade: There are no option-only trades that we like on the stock at the current time.



PulteGroup unveils 2Q results Thursday

What's happening: Michigan homebuilder PulteGroup (PHM) is going to report its second quarter results on July 25. Analysts expect quarterly earnings of $0.29 per share. During the same period last year, the company earned $0.11 per share. The stock is up 6.2% year to date, but ran into selling pressure during June before finally starting to recover earlier this month.


Technical analysis: PHM was recently trading at $19.28, down $5.19 from its 12-month high and $9.32 above its 12-month low. Technical indicators for PHM are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $18.25 and resistance below $21.50. Of the 14 analysts who cover the stock four rate it a "strong buy," one rates it a "buy, and nine rate it a "hold." The stock receives Standard & Poor's 2 STARS "Sell" ranking.


Analyst's thoughts: With the housing marking continuing to improve, I expect to see another strong quarter from Pulte. There has been some concern that rising interest rates will slow down the housing recovery, but homebuilder confidence remains strong. Earlier this month, homebuilder confidence rose to a seven-year high, with the National Association of Homebuilders sentiment rising from 51 to 57 this month. Any reading over 50 means that homebuilders view the housing market as positive. This marks the third straight month of rising confidence. In May, new home sales reached an annual rate of 476,000, which was the highest level in five years. With all signs pointing to an improved housing market, I expect solid numbers for Pulte's second quarter.


Stock-only trade: If you're looking to establish a long stock position in PHM, consider buying the stock under $19 and sell if the stock drops under $17.50 or take profits if it gets to $22.


Option trade: If you are looking for a hedged options trade on PHM, consider an August 15/17 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (130.8% annualized*) and the stock would have to fall 10.8% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $17 call. If PHM rises just 6.8% 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.



Zynga rings up earnings Thursday

What's happening: Social game maker Zynga (ZNGA) will report its second quarter results on July 25. Analysts expect a loss of $0.07 per share. The company last reported earnings in April, and while earnings and revenue topped analyst forecasts, the stock still ran into trouble due to lower monthly usage numbers. Its monthly active users fell 13% during the quarter, and revenue fell 30% from the same period last year. The stock has been stuck in a sideways pattern since February, but a strong jump during the first two months of the year has left the stock up 46.6% year to date.


Technical analysis: ZNGA was recently trading at $3.46, down $1.79 from its 12-month high and $1.37 above its 12-month low. Technical indicators for ZNGA are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $2.90 and resistance under $3.90. Of the 20 analysts who cover the stock one rates it a "strong buy," one rates it a "buy," 15 rate it a "hold," two rate it a "sell," and one rates it a "strong sell."


Analyst's thoughts: If Zynga wants to avoid a major sell-off on its earnings report, it needs to show shareholders progress in building its monthly user base. Last month, the company announced the layoff of 520 employees, which raised further questions on the company's strength. While it is true that Zynga is losing users, the overall number of people in the U.S. that play social media games is on the rise. Analysts expect the number of U.S. people who play games online or on their phones to rise 5.6% this year alone, so there is a lot of opportunity for Zynga should it be able to win back some of its lost users. I wouldn't count Zynga out just yet, but the company needs to start turning things around quickly if it wants to keep its recent gains.


Stock-only trade: If you're looking to establish a long stock position in ZNGA, consider buying the stock under $3.50, and sell if it falls below $3.15 or take profits if it gets to $4.


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


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $2.50 call. If ZNGA rises just 8.7% 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.



Bally Technologies look to expand in Asia

What's happening: Bally Technologies (BYI) recently announced the acquisition of SHFL Entertainment (SHFL) in a deal worth $1.3 billion. BYI shares soared on the news. The stock has been trending higher since the beginning of the year, and is now up 45.7% year to date.


Technical analysis: BYI was recently trading at $65.13, down $1.02 from its 12-month high and $23.29 above its 12-month low. Technical indicators for BYI are bulllish and the stock is in a strong upward trend. The stock has support above $54.75. Of the 12 analysts who cover the stock nine rate it a "strong buy," and three rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Bally Technologies is already a big player in the U.S. gambling market, but it hopes the acquisition of SHFL Entertainment will help it establish a larger footprint in the blossoming Asian market. Both companies sell and rent gambling equipment, but Bally only gets 16% of its sale from foreign markets. SHFL, on the other hand, has a strong international business, particularly in China, which is the new center of the gambling world. The merger makes logical sense, and the combined company will be a market leader around the globe. The deal will allow Bally to take advantage of the growth in Asia, and with the casino business improving in the U.S. as well the future looks bright for Bally Technologies.


Stock-only trade: If you're looking to establish a long stock position in BYI, consider buying the stock under $65, and sell if it falls below $55 or take profits if it gets to $74.


Option trade: If you are looking for a hedged options trade on BYI, consider an October 55/60 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (52.4% annualized*) and the stock would have to fall 7.0% 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 BYI rises just 3.2% 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.

112
112 rated 1
288
288 rated 2
479
479 rated 3
645
645 rated 4
644
644 rated 5
653
653 rated 6
638
638 rated 7
483
483 rated 8
288
288 rated 9
123
123 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
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.