5 stocks to watch for next week

Tesla tries to hold recent gains. Sony to discuss turnaround plan. Campbell Soup, Ross Stores and GameStop to report earnings. Bloomberg consumer confidence index is due.

By MSN Money Partner May 17, 2013 1:28PM

Stock market © Digital Vision SuperStockBy Michael Fowlkes, InvestorsObserver


Sony CEO to discuss turnaround plans
What's happening: Sony
(SNE) has been one of the market's strongest performers thus far in 2013, gaining 82.6%. Activist investor Daniel Loeb, who has increased his stake in the company to 6.5%, has recently called on the company to spin off its entertainment arm. But the company said it has no intention of doing so. CEO Kazuo Hirai is scheduled to present the company's turnaround plans at the company's strategy meeting Wednesday.


Technical analysis: SNE was recently trading at $20.45, down $1.78 from its 12-month high and $10.88 above its 12-month low. Technical indicators for SNE are bullish and the stock is in a strong upward trend. The stock has support above $16.00. Two analysts cover the stock, both of who give it a "strong buy" rating. The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: I do not expect to hear anything shocking from Hirai. Japanese companies have historically been resistant to make business decisions based on investor requests, and the fact that the current suggestion is being made by a foreigner makes it even more unlikely that Sony will be swayed by Loeb's appeal. Sony stock has been on such a strong uptrend over the last month that  I do not see much additional upside. But I also do not expect to hear anything from Hirai that will result in a selloff in the stock.


Stock-only trade: With the recent jump in the stock, I would not set up a stock-only trade at the current time. The spike higher has resulted in a price-to-earnings ratio of slightly over 40, which is too high to justify a new position at the current time.


Option trade: If you are looking for a hedged options trade on SNE, consider a July 14/18 bull-put credit spread for a 45-cent credit. That's a potential 12.7% return (70.1% annualized*) and the stock would have to fall 9.8% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $17 call. If SNE rises just 7.2% 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.



Campbell rings up earnings Monday
What's happeningB: Campbell Soup
(CPB) is scheduled to report its fiscal third quarter results before the market opens on May 20. Going into its earnings report the stock has been strong, up 38% year to date, and is currently trading just shy of its 52-week high. Analysts have forecast earnings of $0.56 per share, in-line with earnings during the same period last year.


Technical analysis: CPB was recently trading at $48.14, just $0.06 under its 12-month high and $16.82 above its 12-month low. Technical indicators for CPB are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $46.00. Of the 15 analysts who cover the stock one rates it a "strong buy," 11 rate it a "hold," one rates it a "sell," and two rate it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Campbell has a strong track record of posting better than expected quarterly results. The company has beat analyst estimates for the last six quarters, and I expect it to continue the streak this time around as well. Its soup business has stabilized, and this is reflected in the recent strength in the stock. Given how strongly the stock has performed this year, there is downside risk should the third quarter disappoints, or if the company issues disappointing forward guidance, but there is upside potential as well. Even with the recent run-up in the stock, its price-to-earnings ratio is still just 20.


Stock-only trade: If you're looking to establish a long stock position in CPB, consider buying the stock under $47.50, and sell if it falls below $44 or take profits if it gets to $52.50.


Option trade: If you are looking for a hedged options trade on CPB, consider an August 40/44 bull-put credit spread for a 30-cent credit. That's a potential 8.1% return (31.8% annualized*) and the stock would have to fall 8% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $47 call. If CPB rises just 3.7% 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.



Bloomberg consumer confidence index due Thursday
What's happening:
U.S. investors will be paying close attention to Bloomberg's consumer confidence index, which is due May 23. An improving housing market and lower unemployment has helped boost consumer confidence, and Bloomberg's index reading will show whether or not that trend is continuing. Ross Stores will also report its earnings following the market close on May 23, with analysts expecting $1.07 per share, up from $0.93 during the same period last year. Ross Stores (ROST) has been strong thus far in 2013, gaining 20.7% year-to-date.


Technical analysis: ROST was recently trading at $66.21, down $4.61 from its 12-month high and $14.20 above its 12-month low. Technical indicators for ROST are bullish and the stock is in a strong upward trend. The stock has support above $64.75 and resistance under $66.50. Of the 19 analysts who cover the stock seven rate it a "strong buy," one rates it a "buy" and 11 rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: With both consumer confidence numbers and quarterly earnings due May 23, I expect to see some decent action in the stock the following day. Consumer confidence has been on the uptick, and I expect that to continue. Ross Stores has a long history of reporting earnings in-line with analyst estimates, and I believe it will either match its $0.93 target or surpass it by a penny or two.


Stock-only trade: If you're looking to establish a long stock position in ROST, consider buying the stock under $66, and sell if it falls below $60 or take profits if it gets to $70.


Option trade: If you are looking for a hedged options trade on ROST, consider an August 52.50/57.50 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (39.2% annualized*) and the stock would have to fall 12.5% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $60 call. If ROST rises just 4.2% 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.



Tesla will try to keep its recent gains

What's happening: Automaker Tesla (TSLA) has really come to life over the last month. At the end of March, the stock was trading at $37.89, but has since gained 137% to its current price of near $90. The recent jump in price has ballooned the company's market cap to $10.3 billion. The stock has been soaring after the company announced a $22 million profit during its first quarter, and a 17% gross margin.


Technical analysis: TSLA was recently trading at $84.84, down $12.28 from its 12-month high and $59.32 above its 12-month low. Technical indicators for TSLA are bullish and the stock is in a strong upward trend. The stock has support above $56.00. Of the 11 analysts who cover the stock five rate it a "strong buy," three rate it a "buy," two rate it a "hold," and one rates it a "sell."


Analyst's thoughts: Tesla has been white-hot, but the stock remains very volatile. I like the future of the company but would be a bit wary of the stock until it settles down. This year the company is expected to sell around 21,000 vehicles, which is four times the amount of U.S. sales of Maserati, Lamborghini and Ferrari combined. Tesla is becoming a force in the auto industry and has proven that a company selling small numbers of electric cars can actually turn a profit. The next few weeks will be very important for the stock. If it can hold its current level it should be able to slowly rise from this point, but if not there is a lot of downside risk.


Stock-only trade: While we like the stock, we would not want to set up a new trade at the current time simply because of the recent run up it has enjoyed. If the stock is able to find stability around the current level we will reconsider setting up a new position.


Option trade: If you are looking for a hedged options trade on TSLA, consider a June 60/65 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (134.5% annualized*) and the stock would have to fall 27.1% to cause a problem.


Speculative option-only trade: We do not want to take a bearish stance on the stock at this point, but with the recent run up in shares, the options are not priced in a way that we can comfortably set up a call-only trade at the current time.



GameStop reports earnings Thursday
What's happening: GameStop
(GME) will report its first quarter results before the market opens on May 23. Going into the quarterly report, analysts are forecasting earnings of $0.40 per share, down from $0.54 during the same period last year. GameStop has outpaced analyst estimates each of the last three quarters and has managed to at least match estimates for the last 10 quarters. GameStop stock has been strong this year, trading up 55.3% year-to-date.


Technical analysis: GME was recently trading at $38.99, just $0.27 below its 12-month high and $23.67 above its 12-month low. Technical indicators for GME are bullish and the stock is in a strong upward trend. The stock has support above $37.00. Of the 16 analysts who cover the stock nine rate it a "strong buy," six rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 5 STARS "Strong Buy" ranking.


Analyst's thoughts: I like GameStop and believe it will continue to be a strong performer through the remainder of the year. The company has solid stock performance and has been growing its earnings per share and net income. The video game industry has been lackluster for the last few years, but should get a boost later this year when Microsoft (MSFT) releases its new Xbox gaming console. (Microsoft owns and publishes Top Stocks, an MSN Money site.) Additionally, Sony will shortly be launching a new PlayStation, which is rumored not to be compatible with old PlayStation games. The downside for GameStop is that this will hurt its resale business of used PlayStation games, but should result in a boost to new game sales.


Stock-only trade: With the recent run up in the stock, and it trading so near its 52 week high, I would not be setting up a new stock-only position at this time. There is a lot of downside potential should the company report disappointing earnings number, so I would sit on the sidelines and wait until after the earnings report to jump into the stock.


Option trade: If you are looking for a hedged options trade on GME, consider a July 30/32 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (62.4% annualized*) and the stock would have to fall 16.8% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $33 call. If GME rises just 6.6% 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.



*Annualized returns provided for comparison purposes only


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

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