5 stocks to watch for next week

Wal-Mart and Abercrombie & Fitch to report earnings. Deals boost Comcast and US Airways. Solar stocks head higher after State of the Union address.

By MSN Money Partner Feb 15, 2013 11:51AM
Stock index Image Source Getty ImagesBy Michael Fowlkes, InvestorsObserver

1) Wal-Mart reports Q4 results
What's happening: Wal-Mart (WMT), the nation's largest retailer, saw some selling pressure during the last few months of 2012, but has been gradually trading higher since the start of the year. Wal-Mart is going to be reporting its fourth quarter results on February 21, with analysts expecting earnings of $1.57 per share, up from $1.44 during the same period last year. The company has managed to outpace analyst estimates during each of the last three quarters, and will try to extend that streak this week.

Technical analysis
: WMT was recently trading at $71.39, down $6.21 from its 12-month high and $14.21 above its 12-month low. Technical indicators for WMT are bullish and the stock is in a weak upward trend. The stock has recently seen support above $69.50 and resistance below $72. Of the 21 analysts who cover the stock 10 rate it a "strong buy" and 11 rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.
wmt   
Chart courtesy of stockcharts.com

Analysts' thoughts: With retail playing such a vital role to the health of the overall economy, analysts will pay close attention to Wal-Mart's report. There was concern that the 2% jump in payroll tax that took effect at the start of the year would hurt retail sales, but early reports show the higher tax did not have as big an impact as many feared. Analysts will also pay close attention to the company's same-store sales. When it reported third quarter results, it had same-store sales growth of 1.5%, which was the fifth straight quarter of increases, but was down from 2.2% the previous quarter, and 2.6% in the first.

Stock-only trade: If you're looking to establish a long stock position in WMT, consider buying the stock when it is below $71 and sell if it falls below $63.90 or dips more than 10% or take profits if it gets to $81.75.

Option trade: If you are looking for a hedged options trade on WMT, consider a June 60/65 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (27.2% annualized*) and the stock would have to fall 8.3% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the September $72.50 call. If WMT 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.


2) Comcast to fully acquire NBCUniversal

What's happening: Shares of Comcast (CMCSA) have been in a steady upward trend since the end of 2011. In 2009, the company announced that it would purchase 51% of NBC Universal, and just recently it reached a deal to buy the media company outright. Comcast will now have 100% ownership in NBCUniversal broadcast stations, its cable channels, the Universal movie studio, and theme parks. It's a big move which makes the company a media and technology giant. Earlier this month, the company reported its fourth quarter results, with earnings coming in a penny under analyst estimates at $0.52 per share.
cmcsa
Chart courtesy of stockcharts.com

Technical analysis: CMCSA was recently trading at $40.13, down $1.87 from its 12-month high and $12.04 above its 12-month low. Technical indicators for CMCSA are bearish and the stock is in a weak upward trend. The stock has recently seen support above $38.25. Of the 21 analysts who cover the stock 15 rate it a "strong buy," one rates it a "buy" and five rate it a "hold. The stock receives Standard & Poor's 4 STARS "Buy" ranking.

Analyst's thoughts: While Comcast's acquisition of NBCUniversal goes a long way to solidifying its position as a media giant, I believe that it is missing the boat when it comes to increasing its broadband internet service. The company is going to face increasing competition from AT&T (T) and Verizon (VZ), both of which are focusing intently on increasing their wireless broadband. In Comcast's recent annual report, it acknowledged that some of its phone competitors have been expanding their entertainment service packages to include bundled offerings which could hurt the company down the road. Internet TV is increasing in popularity. Many households are dumping paid cable service and opting to go with free broadcast television and internet service from places such as Hulu and Netflix (NFLX). I like Comcast taking sole ownership of NBC Universal, but think it needs to pay more attention to its broadband.

Stock-only trade: If you're looking to establish a long stock position in CMCSA, consider buying the stock when it is below $40 and sell if it falls below $36 or dips more than 10% or take profits if it gets to $46.

Option trade: If you are looking for a hedged options trade on CMCSA, consider an April 33/38 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (47.2% annualized*) and the stock would have to fall 4.9% to cause a problem.

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


3) Abercrombie & Fitch reports earnings
What's happening: After a steep sell-off last May, Abercrombie & Fitch (ANF) was stuck in a sideways pattern before making a strong move to the upside starting mid-November following its third quarter earnings report. Analysts had expected third quarter results of $0.59 per share, but actual earnings came in much higher at $0.87. The company also was able to raise its full year guidance and as a result the stock jumped more than 34% on the day following the report. It will get its chance to prove to Wall Street that the gains were warranted on February 22 when it reports its fourth quarter results. Analysts have forecast earnings of $1.95 per share over the typically-busy holiday season.
anf
Chart courtesy of stockcharts.com

Technical analysis: ANF was recently trading at $50.59, down $3.51 from its 12-month high and $21.95 above its 12-month low. Technical indicators for ANF are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $45. Of the 26 analysts who cover the stock 13 rate it a "strong buy," one rates it a "buy," and 12 rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.

Analysts' thoughts: With the recent jump we have seen in the stock's price, it is very important for Abercrombie & Fitch to hit its earnings estimate. The general consensus is that retailers will enjoy a strong year. There were fears that higher payroll taxes would put a damper on consumer spending, but January retail sales figures show that is not happening, with retail sales up 0.1% during the month. We expect to see ANF post better than expected numbers, and break out of the sideways pattern it has been in over the last few weeks.

Stock-only trade: If you're looking to establish a long stock position in ANF, consider buying the stock when it is below $50.50 and sell if it falls below $45.50 or dips more than 10% or take profits if it gets to $58.

Option trade: If you are looking for a hedged options trade on ANF, consider an April 37/42 bull-put credit spread for a 65-cent credit. That's a potential 14.9% return (63.4% annualized*) and the stock would have to fall 16.2% to cause a problem.

Speculative call-only trade: We do not want to make a speculative option-only trade on the stock at the current time. We will revisit the situation in a couple of months once we see how the stock holds up moving forward.


4)
US Airways and American agree to merge
What's happening: U.S. Airways (LCC) stock has been on the rise since last summer, with analysts expecting a merger of the company and AMR Corp. The two companies have finally reached a deal, but now it will have to get approval from regulators. The two airlines combined would be much larger than U.S. Airways competitors in both size and resources, so there is a decent chance that the deal will not pass regulatory approval. The companies will form one new company under the American Airlines name. The new carrier will split equity, with 72% going to AMR shareholders and creditors, with the remaining 28% going to US Airways shareholders.  
lcc
Chart courtesy of stockcharts.com

Technical analysis: LCC was recently trading at $14.66, $0.98 below its 12-month high and $7.88 above its 12-month low. Technical indicators for LCC are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen resistance below $15.25. Of the 11 analysts who cover the stock eight rate it a "strong buy," one rates it a "buy," and one rates it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.

Analysts' thoughts: Assuming that regulators approve the merger, the combined company will certainly be stronger and more competitive than the individual companies. The airline industry is going through a major consolidation period and this merger is crucial for both companies involved. Recent mergers have occurred between Delta and Northwest as well as United and Continental. By joining forces, U.S. Airways and American will have a combined valuation of around $11 billion, and will become the nation's top airline based on passenger traffic. If regulators fail to approve the merger we expect to see steep sell offs in both stocks, but we do not expect to see that occur.

Stock-only trade: With the uncertainty surrounding the pending merger, we would not set up a stock-only trade at the current time.

Option trade: If you are looking for a hedged options trade on LCC, consider a June 6/11 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (57.9% annualized*) and the stock would have to fall 15.0% to cause a problem.

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the September $13 call. If LCC rises just 10.2% 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.


5) President Obama reaffirms commitment to solar energy

What's happening: Solar stocks have been strong as of late, with SunPower (SPWR) being one of the strongest. Since the start of the year, the stock has managed to appreciate a remarkable 102%. Earlier this month it reported fourth quarter earnings of $0.18 per share, which was well above the $0.14 that analysts had forecast for the company. During his annual State of the Union address this month, President Obama discussed clean energy, and called it "our generation's Sputnik." He specifically mentioned solar shingles, which resemble actual roof shingles, but have the potential to power homes cheaper than conventional solar panels. Following the State of the Union, all the major solar companies have seen shares trading higher.
spwr
Chart courtesy of stockcharts.com

Technical analysis: SPWR was recently trading at $11.36, $0.18 below its 12-month high and $7.65 above its 12-month low. Technical indicators for SPWR are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $7.75. Of the 14 analysts who cover the stock, two rate it a "strong buy," eight rate it a "hold," two rate it a "sell" and two rate it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.

Analysts' thoughts: Solar energy has been slow to take off, but it appears as though that trend is about to change. The economics behind solar energy have thus far kept it from gaining too much momentum, but solar energy has finally become financially viable. In order to make solar power attractive to consumers, it has be available at a price lower than their current power source. This is where solar is becoming attractive. The average cost of electricity in the U.S. is currently $0.12 per kilowatt hour. Last year, SunPower won a contract for a 100-megawatt plant which will produce energy with a cost of $0.104 per hour. Now that solar power is becoming economically competitive, it will be more widespread, and should be entering the beginning of a major renaissance for the industry.

Stock-only trade: If you're looking to establish a long stock position in SPWR, consider buying the stock when it is below $11.50 and sell if it falls below $10.40 or dips more than 10% or take profits if it gets to $13.25.

Option trade: If you are looking for a hedged options trade on SPWR, consider a June 5/8 bull-put credit spread for a 35-cent credit. That's a potential 13.2% return (32.4% annualized*) and the stock would have to fall 29.4% to cause a problem.

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


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At the time of writing, Mr. Fowlkes does not have direct ownership in any of the stocks mentioned.
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