5 stocks to watch for next week

Gas inventories fall unexpectedly. April auto sales figures will be announced. Automatic Data Processing and Allstate to report earnings. LDK Solar runs into trouble.

By MSN Money Partner Apr 26, 2013 9:56AM

Trading floor © Image Source SuperStockBy Michael Fowlkes, InvestorsObserver


Gas inventories drop
What's happening: Exxon Mobil
(XOM) had been in a down trend since the start of April. But it recently made a strong reversal after the Department of Energy reported last week a surprising 3.9 million barrel drop in gasoline reserves. The drop was much steeper than the 400,000 barrel decline analysts had forecast. The stock has not had the best year thus far, up only 3% year-to-date.


Technical analysis: XOM was recently trading at $87.72, down $5.95 from its 12-month high and $10.59 above its 12-month low. Technical indicators for XOM are bearish and the stock is showing signs of a possible trend reversal. The stock has resistance under $90.75. Of the 15 analysts who cover the stock four rate it a "strong buy," one rates it a "buy," nine 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 expect Exxon continue to show strength through the summer. While the global economy remains shaky, the U.S. economy continues to improve, which should help give oil prices a boost. The high-demand summer driving months are upon us and I expect gasoline prices to inch higher over the upcoming months, which will keep investors interested in Exxon. The company recently announced plans to raise its quarterly dividend by $0.06 per share to $0.63 per share. Its most recent earnings report came in above estimates, but it did miss on the top end, which resulted in a bit of selling. I view any selling in the stock as a buying opportunity before the summer months, which are typically strong for XOM.


Stock-only trade: If you're looking to establish a long stock position in XOM, consider buying the stock when it is below $88.50 and sell if it falls below $79.60 or dips more than 10% or take profits if it gets to $101.75.


Option trade: If you are looking for a hedged options trade on XOM, consider a May 80/85 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (138% annualized*) and the stock would have to fall 3.7% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $85 call. If XOM rises just 2.9% 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.



April auto sales figures due Wednesday
What's happening:
The auto industry has been strong over the last 12 months, and April's auto sales numbers will indicate whether that trend continues. On May 1 the industry reports April figures, which are expected to be strong. With the auto industry continuing to improve, all the major automaker stocks are trading near 52-week highs. Toyota (TM) shares have risen 25% so far this year, and the stock is currently just under its 52-week high.


Technical analysis: TM was recently trading at $115.43, just $0.10 under its 12-month high and $43.39 above its 12-month low. Technical indicators for TM are bullish and the stock is in a weak upward trend. The stock has support above $100. Just two analysts cover the stock, both of whom rate it a "strong buy." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: The stock has surged over the last month, and I would be wary of setting up a new position at the current time. Its recent run has resulted in a price-to-earnings ratio of 18.7, which is higher than I like to see when setting up new positions. I expect the auto industry to continue improving through the year, with strong April sales figures. As long as the industry continues to improve I would use any pullback in the stock as a buying opportunity, but would not jump in until the price-to-earnings ratio dips closer to 17.5.


Stock-only trade: With the recent surge we have seen in the stock, I would not want to set up a stock-only trade at any price above $108.


Option trade: If you are looking for a hedged options trade on TM, consider a June 100/105 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (69.9% annualized*) and the stock would have to fall 8.9% to cause a problem.


Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the October $115 call. If TM rises just 6.7% 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.



Automatic Data Processing reports Friday
What's happening:
Automatic Data Processing (ADP) will report fiscal third quarter results on May 3. Analysts have forecast quarterly earnings of $0.98 per share, which would be up from the $0.91 a share it earned during the same period last year. ADP beat its forecast last quarter, only reported in line earnings for its second quarter, and missed its estimate for the first quarter. So far the stock has been enjoying a great 2013, up 18% year to date.


Technical analysis: ADP was recently trading at $66.88, just $0.07 below its 12-month high and $15.99 above its 12-month low. Technical indicators for ADP are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $64.50. Of the 24 analysts who cover the stock eight rate it a "strong buy," two rate it a "buy," 12 rate it a "hold," and two rate it a "sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: ADP has been enjoying a strong run and I believe it will continue to show strength, despite high unemployment and pressure from European weakness, both of which I expect to ease in the years ahead. The company has a AAA credit rating by S&P, a nice 2.7% dividend yield, and an aggressive share buyback plan. I believe ADP is an excellent long-term holding, and should the company miss its earnings forecast I would use any dip as a buying opportunity.


Stock-only trade: If you're looking to establish a long stock position in ADP, consider buying the stock when it is below $66.75 and sell if it falls below $60 or dips more than 10% or take profits if it gets to $76.75.


Option trade: If you are looking for a hedged options trade on ADP, consider an August 57.50/62.50 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (35.6% annualized*) and the stock would have to fall 5.6% to cause a problem.


Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the November $65 call. If ADP 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.



Allstate rings up earnings Wednesday
What's happening:
Allstate (ALL) will report its first quarter results on May 1. Analysts have forecast quarterly earnings of $1.31 per share, down from $1.42 a share during the same period last year. Allstate has posted better than expected results each of the last eight quarters. The stock has been strong thus far in 2013, up 24.4% year to date.


Technical analysis: ALL was recently trading at $49.70, just $0.86 below its 12-month high and $17.28 above its 12-month low. Technical indicators for ALL are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $48.40. Of the 22 analysts who cover the stock 11 rate it a "strong buy," and 11 rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: Allstate has a strong history of topping analyst estimates and I expect to see that trend continue. The stock recently hit a new 52-week high, but even at its current level the stock is only trading with a price-to-earnings ratio of 10.6, so there is plenty of room to the upside if it continues its streak of beating analysts forecasts with its first quarter results.


Stock-only trade: If you're looking to establish a long stock position in ALL, consider buying the stock when it is below $49.50 and sell if it falls below $44.50 or dips more than 10% or take profits if it gets to $57.


Option trade: If you are looking for a hedged options trade on ALL, consider a June 43/47 bull-put credit spread for a 40-cent credit. That's a potential 11.1% return (69.9% annualized*) and the stock would have to fall 4.6% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $48 call. If ALL rises just 4.5% 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.



LDK Solar misses earnings and bond payment
What's happening: LDK Solar
(LDK) has had a run of bad luck of late. First, the company reported horrible fourth quarter results earlier this month. Analysts had forecast a loss of $0.84 per share, but its actual loss was much worse at $2.96 per share. A second piece of bad news was that the company failed to make a $24 million bond repayment earlier this month, instead arranging a late payment of $16.6 million. As a result, the stock has faltered, losing 13.2% thus far in 2013.


Technical analysis: LDK was recently trading at $1.33, down $2.17 from its 12-month high and $0.62 above its 12-month low. Technical indicators for LDK are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $1.05 and resistance under $1.35. The one analyst who covers the stock gives it a "hold" rating.


Analyst's thoughts: LDK Solar is a company that clearly is in trouble. With its recent earnings fiasco and inability to make a bond payment, there are serious questions about its future. The company is currently looking at $5.4 billion in debt, which will be tough to overcome. The one thing that could save the company is that Chinese banks have a history of saving borrowers that run into trouble, and it is possible that a government-backed bank will swoop in to save the company.   


Stock-only trade: With the recent troubles we have seen in the stock, we would not want to set up a stock-only trade on LDK at the current time.


Option trade: There are no hedged options trade that we like on LDK at the current time, since the stock is so cheap.


Speculative put-only trade: For those with an appetite for higher risk and bigger returns, consider buying the September $1 put. The puts are a bit pricey because everyone has such a negative bias on the stock, but if the company is forced into bankruptcy these puts could result in huge profits. You could buy the put for $0.30, and if the company goes belly up we could make up to a $0.70 profit or 233% return.



*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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