5 stocks to watch next week

Possible military action against Syria drives oil prices higher. McDonald's adds chicken wings to its menu. August auto sales numbers will be announced and Dollar General and H&R Block will report earnings.

By MSN Money Partner Aug 30, 2013 11:54AM

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


Oil prices move higher on possible Syrian attack

What's happening: Based in France, oil company Total SA (TOT) has been trading higher on a possible military strike against Syria. Because any such action in the Middle East creates the possibility of disruptions in oil supplies, oil recently hit a fresh six-month high of $116.61 a barrel. The situation in Syria continues to escalate, with the government most recently accused of launching chemical weapons against its own citizens. President Barack Obama has said yet to reach a decision on what actions to take, but the possibility of military strike is looking more likely each day. TOT stock is up 12.8% year to date, with much of the gains coming in the past month.


Technical analysis: TOT was recently trading at $56.91, down $0.16 from its 12-month high and $10.98 above its 12-month low. Technical indicators for TOT are bullish and the stock is in a strong upward trend. The stock has support above $53.75. Of the six analysts who cover the stock four rate it a "strong buy," one rates it a "buy," and one rates it a "sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Syria on its own does not produce much oil, just 50,000 barrels a day, but the real danger is if the conflict spreads outside of Syria and impacts production in countries like Iraq and Iran, as well as the wider region. Unlike some other large oil producers, Total gets a large percentage of its revenues from Europe, and in particular France. France accounts for around 25% of its sales, and Europe as a whole accounts for roughly 46%. The U.S., on the other hand, only contributes 9% of its annual revenues, so the U.S. economic recovery does not play such a major role in the company's future. If the situation in Syria seriously escalates, Europe faces more trouble than the U.S. because European economies were slower to recover from the global economic crisis and have really just been rallying over the last six to eight months. An increase in oil prices will benefit Total, but if the situation sends Europe back into economic crisis, the long-term impacts on Total could turn very negative. If just a limited military strike happens, I expect oil to trade higher and take TOT with it. But if troubles spread throughout the Middle East it could cause major long-term problems for the company.


Stock-only trade: If you're looking to establish a long stock position in TOT, consider buying the stock under $56, and sell if it falls below $52 or take profits if it gets to $62.


Option trade: If you are looking for a hedged options trade on TOT, consider a November 45/50 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (29.5% annualized*) and the stock would have to fall 10.2% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $55 call. If TOT 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.



McDonald's launches sell Mighty Wings September 9

What's happening: Fast food giant McDonald's (MCD) recently announced it would be selling chicken wings, called "Mighty Wings," starting September 9. The company expects the wings to be available on a nationwide basis by September 24. The move is an attempt to boost sluggish sales and puts the company in more direct competition with Yum Brands' (YUM) Kentucky Fried Chicken. The stock has underperformed the overall market this year, rising just 10.7% year to date.


Technical analysis: MCD was recently trading at $96.08, down $7.62 from its 12-month high and $12.77 above its 12-month low. Technical indicators for MCD are bearish and the stock is showing signs of a possible trend reversal. The stock has resistance below $99.00. Of the 25 analysts who cover the stock nine rate it a "strong buy," two rate it a "buy," and 14 rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: McDonald's decision to start selling chicken wings is a smart move on the company's part. It has been facing sluggish sales, and adding wings could help change that. Sales of chicken wings are among the fastest-growing segment of the restaurant industry, jumping 11% last year to over $8 billion. Obesity concerns are putting pressure on McDonald's, with its fatty fast food image, so adding chicken wings will go toward distancing itself from its long-standing image. I expect a positive reception of the wings and believe MCD stock will get a nice boost from their success.


Stock-only trade: If you're looking to establish a long stock position in MCD, consider buying the stock under $96, and sell if it falls below $87.50 or take profits if it gets to $103.


Option trade: If you are looking for a hedged options trade on MCD, consider a November 85/90 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (45.7% annualized*) and the stock would have to fall 5.5% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $90 call. If MCD rises just 2.6% 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.



August auto sales figures due Wednesday

What's happening: Shares of U.S. automaker General Motors (GM) are likely to react to August auto sales figures when they are released on September 4. Industry numbers will be available on Wednesday, but GM will likely release its own figures on Tuesday, September 3, the first business day of the month. The stock has appreciated 17.7% year to date.


Technical analysis: GM was recently trading at $33.92, down $3.79 from its 12-month high and just $13.06 above its 12-month low. Technical indicators for GM are neutral and the stock is in a weak downward trend. The stock has support above $32.00. Of the 12 analysts who cover the stock seven rate it a "strong buy," two rate it a "buy," and three rates it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Analysts expect s strong sales number for August. Industry experts are expecting gains in the range of 12% to 13.6%. LMC Automotive estimates that monthly sales could top 1.5 million, which would be the best month for the auto industry since May 2007. GM had strong July sales, selling 16% more vehicles than the same month last year, and I expect another month of strong gains. The Detroit automaker's stock has been trending lower since the end of July, and an upbeat report on August sales could be exactly what the stock needs to reverse course and trade higher.


Stock-only trade: If you're looking to establish a long stock position in GM, consider buying the stock under $34, and sell if it falls below $32 or take profits if it gets to $37.


Option trade: If you are looking for a hedged options trade on GM, consider an October 27/30 bull-put credit spread for a 25-cent credit. That's a potential 9.1% return (65.1% annualized*) and the stock would have to fall 11.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $31 call. If GM rises just 5.3% 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.



Dollar General to report earnings Wednesday

What's happening: Discount retailer Dollar General (DG) will report its second quarter results before the market opens on September 4. Analysts expect earnings of $0.76 per share, up from $0.65 per share during the same period last year. The stock is up 23.6% thus far in 2013.


Technical analysis: DG was recently trading at $54.48, down $1.62 from its 12-month high and $14.75 above its 12-month low. Technical indicators for DG are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $52.00 and resistance under $56.00. Of the 17 analysts who cover the stock 11 rate it a "strong buy," and six rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Discount retailers were among the best performers during the recent recession, and they have remained strong even as the economy has improved. Dollar General is the nation's largest dollar store chain by market cap, and it currently operates more than 10,000 stores. The economy has been improving, but for most Americans life feels little different now than the past few years. Over the past few years, the company's annual earnings per share rose from $0.47 in 2009, to $2.91 last year, with the company reporting record sales and income during its most recent quarter. I expect another strong quarter, which should help keep the stock moving in the right direction.


Stock-only trade: If you're looking to establish a long stock position in DG, consider buying the stock under $54.50, and sell if it falls below $50 or take profits if it gets to $61.


Option trade: If you are looking for a hedged options trade on DG, consider an October 45/50 bull-put credit spread for a 65-cent credit. That's a potential 14.9% return (106.9% 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 November $52.50 call. If DG rises just 1.4% 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.



H&R Block unveils Q1 results Tuesday

What's happening with HRB: H&R Block (HRB) will report its fiscal first quarter results after the market close on September 3. Analysts expect a loss of $0.35 per share, slightly better than the $0.38 loss per share during the same period last year. The stock has been a strong performer thus far in 2013, trading up 53.9% year to date.


Technical analysis: HRB was recently trading at $28.18, down $3.91 from its 12-month high and $12.28 above its 12-month low. Technical indicators for HRB are neutral and the stock is in a weak downward trend. The stock has resistance below $30.50. Of the five analysts who cover the stock three rate it a "strong buy," and two rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Over the last year, the company has increased its revenue more than six-fold on a year-over-year basis. During its fiscal fourth quarter, it had a remarkable 21.80% increase in year over year revenues, and while I do not expect the company will post such strong numbers this quarter, I do expect higher revenues. Analysts have forecast quarterly revenues of $98.4 million, which is 2% than the same period last year. The stock was trending higher for the majority of the year, but trailed off since the start of August. If the company is able to outpace analyst estimates, the stock should find a bottom and start to recover some of its recent losses.


Stock-only trade: If you're looking to establish a long stock position in HRB, consider buying the stock under $28, and sell if it falls below $26 or take profits if it gets to $32.


Option trade: If you are looking for a hedged options trade on HRB, consider an October 22/26 bull-put credit spread for a 40-cent credit. That's a potential 11.1% return (79.5% annualized*) and the stock would have to fall 6.3% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $26 call. If HRB rises just 3.0% 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 does not have direct ownership in any of the other stocks mentioned.

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