5 stocks to watch next week

Lowe's, Urban Outfitters and Abercrombie & Fitch report earnings. July's new home sales figures will be announced. US government moves to block US Airways-American merger.

By MSN Money Partner Aug 16, 2013 12:17PM

Stock market (© Digital Vision/SuperStock)By Michael Fowlkes, InvestorsObserver


Lowe's reports earnings Wednesday

What's happening: Home improvement retailer Lowe's (LOW) will report its second quarter results before the market opens on August 21. Analysts are expecting earnings of $0.78 per share, up from $0.65per share during the same period last year. The stock has been a strong performer this year, trading up 28.3% year to date.


Technical analysis: LOW was recently trading at $45.00, down $1.25 from its 12-month high and $19.03 above its 12-month low. Technical indicators for LOW are bullish and the stock is in a strong upward trend. The stock has support above $43.50. Of the 20 analysts who cover the stock eight rate it a "strong buy," two rate it a "buy," and 10 rate it a "hold." The stock receives Standard & Poor's 2 STARS "Sell" ranking.


Analyst's thoughts: LOW stock has been strong over the last 12 months as the U.S. housing market continues to improve. Not only is an improved housing market leading to new home construction, rising home prices are enticing homeowners to once again start making repairs and upgrades to their current properties. Improvements in the nation's job market is also boosting Lowe's as more families are able to make repairs to their homes that they put off during the economic downturn. I expect strong numbers from Lowe's when it reports its second quarter results.


Stock-only trade: If you're looking to establish a long stock position in LOW, consider buying the stock under $44, and sell if it falls below $40 or take profits if it gets to $50.


Option trade: If you are looking for a hedged options trade on LOW, consider a September 37/40 bull-put credit spread for a 25-cent credit. That's a potential 9.1% return (89.7% annualized*) and the stock would have to rise 8.2% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $40 call. If LOW 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.



Urban Outfitters unveils Q2 results Monday

What's happening: Clothing retailer Urban Outfitters (URBN) will report its second quarter results after the market close on August 19. Analysts are expecting the company to report earnings of $0.48 per share, down from $0.42 during the same period last year. The stock has traded higher this year, but has failed to keep up with the overall market. Year to date, the stock has traded up 3.6%.


Technical analysis: URBN was recently trading at $40.77, down $4.19 from its 12-month high and $9.99 above its 12-month low. Technical indicators for URBN are bearish and the stock is in a weak downward trend. The stock has support above $39.00 and resistance below $42.00. Of the 22 analysts who cover the stock 12 rate it a "strong buy," two rate it a "buy," and eight rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Urban Outfitters has been extremely strong over the last year, in part due to increased "direct to consumers" business. The company is working on a new product catalog, and has been aggressive in luring customers to its website with exclusive web offerings. When it last reported results, it posted earnings of $0.32 per sahre, which came in $0.03 above estimates. Its Anthropologie brand has weighed on the company in recent years, but that has started to change. During the first quarter, same-store sales at Anthropologie stores were up 8%, mainly due to shifting the product line from preppy to more sensual feminine looks. I expect more strong numbers from Urban Outfitters when it reports its earnings on August 19.


Stock-only trade: If you're looking to establish a long stock position in URBN, consider buying the stock under $40.50, and sell if it falls below $37 or take profits if it gets to $46.


Option trade: If you are looking for a hedged options trade on URBN, consider a September 32/36 bull-put credit spread for a 30-cent credit. That's a potential 8.1% return (80.0% annualized*) and the stock would have to fall 9.7% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $37 call. If URBN rises just 6.4% 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.



New home sales data due Friday

What's happening: On August 23, the market will get an update on the health of the housing market when new home sales numbers for July are released. The housing market has been improving, but this has not helped Lennar (LEN) stock, which has declined 17.9% since the start of the year.


Technical analysis: LEN was recently trading at $31.66, down $12.74 from its 12-month high and just $0.62 above its 12-month low. Technical indicators for LEN are bearish and the stock is in a strong downward trend. The stock has resistance below $34.00. Of the 17 analysts who cover the stock five rate it a "strong buy," four rate it a "buy," and eight rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Despite the improving housing market, Lennar has not enjoyed much strength this year. The stock has been especially weak since the middle of May, as investors express concerns over the housing recovery when the Federal Reserve starts to taper back its policy of monetary easing. I believe these fears are overblown and expect to see the stock start to trend higher through the second half of the year. During its most recent quarter, Lennar had strong earnings, with a profit of $0.43 per share, easily outpacing the $0.33 that analysts had forecast. I expect the numbers for July new home sales will give further evidence that the housing market continues to improve, which will help Lennar correct its recent losses and trade higher. Even with homebuilders ramping up their construction efforts, there is still a shortage of new homes, which should keep housing prices headed higher even if rates do increase as many expect. I like homebuilders at the current time, and believe the recent selling in LEN presents a good buying opportunity.


Stock-only trade: If you're looking to establish a long stock position in LEN, consider buying the stock under $33, and sell if it falls below $30 or take profits if it gets to $38.


Option trade: If you are looking for a hedged options trade on LEN, consider a September 26/30 bull-put credit spread for a 40-cent credit. That's a potential 11.1% return (109.6% annualized*) and the stock would have to fall 7.7% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $30 call. If LEN rises just 6.3% 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.



Abercrombie & Fitch reports earnings Thursday

What's happening: Clothing retailer Abercrombie & Fitch (ANF) will report its second quarter results before the market opens on August 22. Analysts are expecting earnings of $0.31 per share, up from $0.20 during the same period last year. The stock is up 5.6% year to date.  


Technical analysis: ANF was recently trading at $50.22, down $5.01 from its 12-month high and $20.16 above its 12-month low. Technical indicators for ANF are bullish and the stock is showing signs of a possible trend reversal. The stock has resistance above $51.50. Of the 25 analysts who cover the stock 13 rate it a "strong buy," two rate it a "buy," and nine rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Abercrombie & Fitch's last earnings report was a major disappointment for investors. Wall Street expected ANF to report a first quarter loss of $0.05 per share, but the actual loss came in much greater at 0.09 per share, mainly because of an inventory shortage related to delayed shipments of its 2013 line. Those inventory problems are behind the company, and I do not expect a repeat of its disappointing first quarter. The stock has stabilized over the last two months, and I believe improved consumer confidence will help it report good earnings and send the stock higher.


Stock-only trade: If you're looking to establish a long stock position in ANF, consider buying the stock under $49, and sell if it falls below $45 or take profits if it gets to $55.


Option trade: If you are looking for a hedged options trade on ANF, consider a September 38/42 bull-put credit spread for a 50-cent credit. That's a potential 14.3% return (140.9% annualized*) and the stock would have to fall 13.0% 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 ANF rises just 6.9% 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.



Justice Department sues to block American Airlines-US Airways merger

What's happening: The U.S. Justice Department has sued to prevent a merger between US Airways (LCC) and American Airlines. The decision to prevent the merger caught the industry by surprise because previous mergers of this size have been allowed to go forward without the Justice Department stepping in. The news sent US Airways stock lower, falling 15.9% since the announcement. Even with the recent drop, the stock is still currently trading up 17.3% year to date.  


Technical analysis: LCC was recently trading at $16.17, down $3.53 from its 12-month high and $6.27 above its 12-month low. Technical indicators for LCC are bearish and the stock is in a strong downward trend. The stock has support above $15.50. Of the seven analysts who cover the stock four rate it a "strong buy," two rate it a "hold," and one rates it a "sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Even with the Justice Department stepping in, I am not convinced that the merger will not eventually go through, although it will require some concessions. The main concern of the Justice Department is that the merger, which would create the largest airline in the world, will disrupt competition and result in higher ticket prices for travelers. Of course, US Airways and American Airlines contend that the exact opposite will occur and are ready to fight the Justice Department for approval. I believe the deal will ultimately go through, but we could be looking at a prolonged and public fight. The merger fight will continue to make headlines, which will most likely keep the stock weak. I see little upside at the current time but believe we could still see shares trade lower if it starts to look like the company is losing the fight.


Stock-only trade: With so much uncertainty surrounding the company's merger plans with American, I would not want to set up a long stock position at the current time.


Option trade: If you are looking for a hedged options trade on LCC, consider a September 18/20 bear-call credit spread for a 20-cent credit. That's a potential 11.1% return (109.6% annualized*) and the stock would have to rise 15.0% to cause a problem.


Speculative put-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $18 call. If LCC falls just 7.5% you can pull in a 20% or better profit on the option. However, if the stock moves higher, 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 does not have direct ownership in any of the other stocks mentioned.

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