5 stocks to watch next week

August consumer confidence index to be announced. McKesson stock goes ex-dividend. Salesforce.com and Zales to report earnings. Chinese solar stocks shoot higher.

By MSN Money Partner Aug 23, 2013 10:20AM

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


Consumer confidence released Tuesday

What's happening: The market will get a better reading on the future of the retail sector when the Conference Board releases its consumer confidence index on August 27. Costco (COST) has run into some selling pressure over the last two weeks, but overall has been strong this year. In the company's last reported earnings on May 30, it beat analyst earnings estimates and reported an 8% jump in revenue. The stock moved higher following the report. Year to date, COST stock is up 14.3%.


Technical analysis: COST was recently trading at $111.96, down $8.24 from its 12-month high and $18.45 above its 12-month low. Technical indicators for COST are neutral and the stock is in a weak downward trend. The stock has support above $109 and resistance under $115. Of the 23 analysts who cover the stock 13 rate it a "strong buy," eight rate it a "hold," and two rate it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: I expect the consumer confidence index to remain flat to slightly lower for the month of August. However, I do not believe there is much downside risk to COST stock. Costco has outpaced analysts each of its last six quarters, and I don't believe traders will turn against the stock even if consumer confidence trends slightly lower. Because Costco offers deals in bulk, the company is able to remain strong even if confidence starts to weaken. Earlier this month, Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell from its six year high in July, so it is reasonable to assume a similar decline in the Conference Board's index. Consumer confidence is still high, and it will take more than a month or two of declines to have a negative impact on Costco.  


Stock-only trade: If you're looking to establish a long stock position in COST, consider buying the stock under $112, and sell if it falls below $105 or take profits if it gets to $128.


Option trade: If you are looking for a hedged options trade on COST, consider an October 100/105 bull-put credit spread for a 55-cent credit. That's a potential 12.4% return (76.5% annualized*) and the stock would have to rise 5.7% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the January $105 call. If COST 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.



McKesson stock goes ex-dividend on Thursday

What's happening: McKesson Corp. (MCK) announced in July that it was raising its quarterly dividend from $0.20 per share to $0.24 a share. The stock will start trading ex-dividend on Thursday, August 29. The new dividend will only be paid to investors who own or buy the stock prior to that day. MCK stock has been a strong performer this year, having traded up 26.4% year to date.


Technical analysis: MCK was recently trading at $122.08, down $4.28 from its 12-month high and $37.43 above its 12-month low. Technical indicators for MCK are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $115.00 and resistance below $125.00. Of the 13 analysts who cover the stock seven rate it a "strong buy," and six rate it a "hold." The stock receives Standard & Poor's 5 STARS "Strong Buy" ranking.


Analyst's thoughts: At MCK's current price, the stock is paying an annual dividend of 0.8% using recently raised dividend amount. In order to get the new dividend, investors must place their orders prior to Thursday, so the stock could trade up during the first half of the week, with dividend traders moving in to take advantage of the 20% dividend hike. I do not expect any strong moves in the stock, but the higher dividend will help MCK maintain the strength it has enjoyed during the first half of the year.


Stock-only trade: If you're looking to establish a long stock position in MCK, consider buying the stock under $122, and sell if it falls below $110 or take profits if it gets to $140.


Option trade: If you are looking for a hedged options trade on MCK, consider a November 105/110 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (42.0% annualized*) and the stock would have to fall 9.5% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the January $110 call. If MCK rises just 9.5% 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.



Salesforce.com reports earnings Thursday

What's happening: Salesforce.com (CRM) will report its second quarter results after the market closes on August 29. Analysts are expecting earnings of $0.12 per share, up from $0.11 per share during the same period last year. 2013 has been a positive year for the stock, but its 3.5% gain year to date is trailing the performance of the overall market.


Technical analysis: CRM was recently trading at $43.50, down $4.08 from its 12-month high and just $8.74 above its 12-month low. Technical indicators for CRM are bullish and the stock is in a weak downward trend. The stock has support above $42.00. Of the 29 analysts who cover the stock 20 rate it a "strong buy," four rate it a "buy," four rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 1 STARS "Strong Sell" ranking.


Analyst's thoughts: Over the last five quarters, the company has posted earnings that were either in-line with analyst estimates, or slightly higher. I expect another report that is basically inline with analyst estimates. The stock has received some favorable press as of late, with Jefferies Group reiterating its "buy" rating, and setting a $52 price target on the stock. Salesforce stands to benefit from the increased interest in cloud computing, and I expect the stock to show strength in the latter part of the year. I don't think the stock will climb to Jefferies' $52 target by the end of the year, but I do believe it will report OK earnings and the stock will move higher.


Stock-only trade: If you're looking to establish a long stock position in CRM, consider buying the stock under $39, and sell if it falls below $30 or take profits if it gets to $49.


Option trade: If you are looking for a hedged options trade on CRM, consider a September 35/39 bull-put credit spread for a 45-cent credit. That's a potential 12.7% return (154.2% annualized*) and the stock would have to fall 9.3% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $42 call. If CRM rises just 5.9% 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.



Chinese solar stocks up on Bloomberg report

What's happening: Trina Solar (TSL) stock was a weak performer during the latter part of 2012 but has recently surged higher on favorable reports from both Bloomberg and the Maxim Group. China's slower growth and overstock of solar supplies hurt Chinese solar companies such as Trina Solar, but Bloomberg reports demand is surging in Asia countries, which will allow solar companies to run at full capacity. Maxim Group issued a statement that Trina Solar will return to profitability next year. The stock is up 106.7% year to date.


Technical analysis: TSL was recently trading at $8.97, down $0.22 from its 12-month high and $6.93 above its 12-month low. Technical indicators for TSL are bullish and the stock is in a strong upward trend. The stock has support above $7.25. Of the nine analysts who cover the stock one rates it a "strong buy," six rate it a "hold," and two rate it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: I have a slightly bullish view on Trina Solar at the current time. I believe that increased demand out of Asia will continue to help the company, but I do not expect any big moves at the current time. I believe the big move has already occurred, and most likely the stock will trade slowly higher through the remainder of the year. Increased optimism over Asian demand, and the belief that the company will return to profitability will keep the stock trending higher through the remainder of the year, just not with the same strength as its upward move over the last five months.


Stock-only trade: If you're looking to establish a long stock position in TSL, consider buying the stock under $8.50, and sell if it falls below $7.75 or take profits if it gets to $9.75.


Option trade: If you are looking for a hedged options trade on TSL, consider an October 5/7 bull-put credit spread for a 25-cent credit. That's a potential 14.3% return (89.9% annualized*) and the stock would have to fall 19.2% to cause a problem.


Speculative call-only trade: I am bullish on the stock, but with the recent jump in share price there are no calls priced attractively at the current time to warrant a call-only trade at this point.



Zale unveils Q4 results Wednesday

What's happening: Jewelry retailer Zale Corp. (ZLC) will be reporting its fiscal fourth quarter and full year results before the market opens on August 28. Analysts expect a loss of $0.33 per share, which is up from a $0.61 per share loss during the same period last year. The stock has been a standout in 2013, having traded up 116.8% year to date.


Technical analysis: ZLC was recently trading at $8.91, down $1.58 from its 12-month high and $5.30 above its 12-month low. Technical indicators for ZLC are neutral and the stock is in a weak downward trend. The stock has resistance below $9.50. Of the four analysts who cover the stock three rate it a "strong buy," and one rates it a "hold."


Analyst's thoughts: I expect Zale to at least match analyst estimates for the quarter, but I doubt it will report earnings as strong as last period. For its third quarter, analysts expected a loss of $0.01 per share, but the company reported a profit of $0.13 per share. Zale is smaller than many of its competitors, which has hurt it during the post-recession market where gold and silver prices rose, putting pressure on the margins. Recent drops in precious metals will likely help boost Zale's profit margins, and additional focus on product line should benefit the company going forward. I am not extremely bullish on the stock, but I do not believe there is much downside risk at the current time either based on an improved overall economy and lower costs of gold and silver.


Stock-only trade: If you're looking to establish a long stock position in ZLC, consider buying the stock under $8.75, and sell if it falls below $8 or take profits if it gets to $10.


Option trade: If you are looking for a hedged options trade on ZLC, consider an October 5.75 bull-put credit spread for a 35-cent credit. That's a potential 16.3% return (102.4% annualized*) and the stock would have to rise 11.9% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the September $7.50 call. If ZLC 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.



*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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