5 stocks to watch next week

AutoZone, Red Hat and Lennar report earnings. Apple sells its 2 new iPhones, and consumer confidence numbers for September are released.

By MSN Money Partner Sep 20, 2013 11:34AM

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


Apple to announce sales figures for 2 new iPhones

What's happening: Apple (AAPL) officially begins selling its two new iPhones on September 20. Unlike previous iPhone launches, this year Apple will be launching two new models, the iPhone 5s, and a less expensive model, the 5c. The market will watch for sales figures of the launch weekend on Monday, September 23. Apple shares have run into trouble this year, and while the stock has rebounded over the last two months, it remains down 11.0% year to date.


Technical analysis: AAPL was recently trading at $464.68, down $240.39 from its 12-month high and $79.58 above its 12-month low. Technical indicators for AAPL are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $420 and resistance below $500. Of the 38 analysts who cover the stock 24 rate it a "strong buy," four rate it a "buy," and 10 rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Apple has a lot riding on the success of its new iPhone. The stock has started to rebound over the last few months but still remains well below its all time high set last September. Wall Street has been tough on Apple due to increased smartphone competition and concerns over the company's gross margins. The opening weekend sales figures for Apple's new phones will be keyed on by traders and the stock is sure to react. Piper Jaffray analyst Gene Munster has forecast launch weekend sales figures between 5 million and 6 million units for the 2 iPhone combined. A more optimistic forecast came from Citigroup analyst Glen Yeung, who forecast sales of around 7.75 million units. Last year, Apple sold 5 million phones when it released the iPhone 5 during its launch weekend. If the stock is going to get a boost from this year's launch, the company is going to need to beat that figure. I believe anything less than 6 million units will be seen as a disappointment and send the stock lower, while a higher number will help the stock continue to regain some of its early 2013 losses.


Stock-only trade: If you're looking to establish a long stock position in AAPL, consider buying the stock under $465, and sell if it falls below $420 or take profits if it gets to $530.


Option trade: If you are looking for a hedged options trade on AAPL, consider an October 420/425 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (135.2% annualized*) and the stock would have to fall 8.4% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $445 call. If AAPL rises just 4.9% 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.


Consumer confidence numbers due Tuesday

What's happening: After several months of improved consumer confidence, the situation is starting to weaken. Mortgage rates are hovering around their two-year highs, and payrolls are growing at their slowest rate in a year. Earlier this month, the Thomson Reuters/University of Michigan consumer sentiment index fell to its lowest level since April. We will get a clearer picture on September 24, when the Conference Board will release its September figures on consumer confidence. For retailers such as Target (TGT) it will be a very important report considering how close we are to the upcoming holiday shopping season. Target has been a decent performer in 2013, having traded up 12.6% year to date, but that still has underperformed the broader market.


Technical analysis: TGT was recently trading at $65.48, down $8.02 from its 12-month high and $7.47 above its 12-month low. Technical indicators for TGT are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $63.25. Of the 19 analysts who cover the stock six rate it a "strong buy," and 12 rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Every year, headed into the holiday shopping season, analysts try to predict how strong or weak holiday spending will be. After a disappointing back-to-school shopping season, there have already been some downbeat forecasts for the holiday season. ShopperTrak expects a 2.4% increase in November and December sales, less than the 3% increase last year, and 4% gains of 2011 and 2010. Last month, Target reported disappointing second quarter results, as well as issued adjusted full year earnings per share guidance to the low range of its previous forecast. This resulted in a sharp sell off of the stock, but shares have started to rebound over the last week. A positive report on consumer confidence could help the stock continue to make back some of its recent losses, but a disappointing report could easily erase all of the ground it has recovered in the last week.


Stock-only trade: If you're looking to establish a long stock position in TGT, consider buying the stock under $66, and sell if it falls below $60 or take profits if it gets to $76.


Option trade: If you are looking for a hedged options trade on TGT, consider a January 55/60 bull-put credit spread for a 55-cent credit. That's a potential 12.4% return (37.3% annualized*) and the stock would have to fall 7.5% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the January $60 call. If TGT rises just 2.8% 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.



AutoZone will report earnings on Wednesday

What's happening: AutoZone (AZO) will report its fiscal fourth quarter results before the market opens on September 25. Analysts expect earnings of $10.39 per share. AutoZone has been a strong performer this year, having traded up 18.7% year to date.


Technical analysis: AZO was recently trading at $420.62, down $31.57 from its 12-month high and just $78.64 above its 12-month low. Technical indicators for AZO are neutral and the stock is in a weak downward trend. The stock has support above $412.00. Of the 16 analysts who cover the stock eight rate it a "strong buy," seven rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Analysts have high expectations for AutoZone's recent quarter. If AutoZone is able to hit analyst estimates, it would mark an increase of 18.5% from the same period last year. The overall auto industry has been in recovery, but that does not change the fact Americans are hanging onto their cars longer. The average age of vehicles on the road today is 11.4 years. This trend has benefitted auto suppliers such as AutoZone. I expect another strong quarter from AutoZone, and believe the stock will trade higher following the earnings report.


Stock-only trade: If you're looking to establish a long stock position in AZO, consider buying the stock under $420, and sell if it falls below $380 or take profits if it gets to $475.


Option trade: If you are looking for a hedged options trade on AZO, consider an October 380/390 bull-put credit spread for a $1 credit. That's a potential 11.1% return (135.2% 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 December $400 call. If AZO rises just 3.9% 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.



RedHat to unveil 2Q results Monday

What's happening: Software company RedHat (RHT) will report its second quarter results following the market close on September 23. Analysts expect earnings of $0.22 per share. RHT has traded higher in 2013, but with the stock up just 1.2% year to date.


Technical analysis: RHT was recently trading at $53.58, down $4.84 from its 12-month high and $8.66 above its 12-month low. Technical indicators for RHT are bullish and the stock is in a strong upward trend. The stock has support above $51. Of the 25 analysts who cover the stock 11 rate it a "strong buy," two rate it a "buy," 11 rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: If history is any indication, I expect an upbeat earnings report from RedHat for its second quarter. Over the last four years, the company has posted better than expected 10 times, reported earnings in-line with analyst estimates on five occasions, and reported weaker than expected earnings just once. According to analysts at Lazard, RedHat is likely to post better than expected quarterly numbers as a result of strong government spending during the quarter, a trend that is likely to continue through the end of the year. A strong earnings report should help RedHat continue its recent upward momentum, but if the company misses its earnings estimate the stock could easily test support at $51.


Stock-only trade: If you're looking to establish a long stock position in RHT, consider buying the stock under $53.50, and sell if it falls below $50.50 or take profits if it gets to $61.50.


Option trade: If you are looking for a hedged options trade on RHT, consider a December 40/45 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (43.6% annualized*) and the stock would have to fall 15.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the December $50 call. If RHT 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.



Lennar releases earnings Tuesday

What's happening with LEN: Homebuilder Lennar (LEN) will report its fiscal third quarter results before the market opens on September 24. Analysts expect earnings of $0.46 per share. Lennar stock has been a poor performer so far in 2013, trading down 3.2% year to date.


Technical analysis: LEN was recently trading at $37.33, down $7.07 from its 12-month high and $6.43 above its 12-month low. Technical indicators for LEN are neutral and the stock is in a strong upward trend. The stock has resistance below $39.25. Of the 15 analysts who cover the stock four rate it a "strong buy," four rate it a "buy," and seven rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: The housing market has been recovering, but shares of Lennar have continued to underperform the market. The stock has been trading higher over the last three weeks, and an upbeat earnings report will help the stock continue its recent move. In June, the company reported strong quarter results of $0.43 per share, easily topping the $0.33 analysts were expecting. With the Federal Reserve announcing it was not ready to taper its massive bond-buying, LEN stock has a lot of upside potential should the company post better than expected earnings.


Stock-only trade: If you're looking to establish a long stock position in LEN, consider buying the stock under $37, and sell if it falls below $34 or take profits if it gets to $42.


Option trade: If you are looking for a hedged options trade on LEN, consider an October 30/33 bull-put credit spread for a 25-cent credit. That's a potential 9.1% return (110.6% annualized*) and the stock would have to fall 10.9% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $34 call. If LEN rises just 5.1% 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.



*Annualized returns provided for comparison purposes only


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At the time of writing, Mr. Fowlkes has direct ownership Apple (AAPL), and does not have direct ownership in any of the other stocks mentioned.

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