5 stocks to watch next week

Lowe's, Macy's, and other retailers will report earnings. Herbalife activist investors struggle for dominance. February auto sales will be announced.

By MSN Money Partner Feb 22, 2013 11:59AM

 Stock market copyright Zurbar, age fotostockMichael Fowlkes, InvestorsObserver

 

1) Lowe's reports Q4 results 

What's happening: Home improvement retailer Lowe's (LOW) has been advancing since last summer, benefitting from an improving real estate market. Since the start of August, the stock has risen 57%. The company last reported results on Nov. 19, posting third quarter earnings of $0.40 per share and easily topping analyst estimates by $0.05. Lowe's will report fourth-quarter results on Feb. 25, with analysts forecasting earnings of $0.23 per share, down from $0.29 during the same period last year.

 

Technical analysis: LOW was recently trading at $39.03, $0.95 below its 12-month high and $14.27 above its 12-month low. Technical indicators for LOW are bullish and the stock is showing signs of a possible trend reversal. 


The stock has recently seen support above $38.50. Of the 21 analysts who cover the stock nine rate it a "strong buy", two rate it a "buy", nine rate it a "hold", and one rates it a "strong sell". The stock receives Standard & Poor's 2 STARS "sell" ranking.

 

Analysts' thoughts: Lowe's stock has been strong since last summer, a direct result of the improving housing market. Inventories are shrinking, prices are rising, and the general view of the housing market has remained strong. As long as the housing market continues to improve, we would expect to see continued strength in Lowe's and other home improvement retailers such as Home Depot (HD). Analysts will pay close attention to Lowe's earnings, because it will not only give an insight to Lowe's but also a snapshot of the health of the overall housing industry as well. We have a bullish view of the company, but must keep in mind that after the strong move the stock has made over the last six months, an earnings miss could result in major selling pressure. 

 

Stock-only trade: If you're looking to establish a long stock position in LOW, consider buying the stock when it is below $39 and sell if it falls below $35.10 or dips more than 10% or take profits if it gets to $44.85.

 

Option trade: If you are looking for a hedged options trade on LOW, consider an April 30/35 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (36.9% annualized*) and the stock would have to fall 10.0% to cause a problem.

 

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the July $36 call. If LOW rises just 5.5% 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.

 

2) Macy's reports Q4 results  

What's happening: Macy's (M) has been stuck in a fairly tight sideways pattern since September. The looming fiscal cliff kept investors on the sidelines towards the end of 2012, and concern over the impact retailers will feel from increased payroll tax is keeping the stock in a tight range thus far in 2013 despite a string of strong earnings reports. Macy's has outpaced analyst estimates during each of the last ten quarters and it will look to increase that streak when it reports fourth-quarter results on Feb. 26. Analysts expect to see the company report Q4 earnings of $1.99 per share, up from $1.70 during the same period last year.

 

Technical analysis: M was recently trading at $39.63, down $2.54 from its 12-month high and $7.32 above its 12-month low. Technical indicators for M are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $39 seen resistance below $40.25. Of the 14 analysts who cover the stock eight rate it a "strong buy," one rates it a "buy," and five rate it a "hold." The stock receives Standard & Poor's 3 STARS "hold" ranking.

 

Analysts' thoughts: On the heels of a very positive month of January, we expect strong fiscal fourth-quarter earnings from the company on Feb. 26. After announcing that January same-store sales were up 12%, nearly double the 6.4% increase forecast by analysts, Macy's increased its Q4 earnings guidance to a range of $1.94 to $1.99 a share. Its fiscal fourth-quarter sales were up 7.2% to $9.35 billion, which outpaced the $9.28 billion analysts were expecting. Because of the strong sales figures, we believe that it will impress Wall Street with its full quarterly report, and the stock will continue to rise following the report.

 

Stock-only trade: If you're looking to establish a long stock position in M, 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 M, consider a May 31/36 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 9.4% to cause a problem.

 

Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the August $36 call. If M 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.

 

3) Activist investors continue to bicker over Herbalife

What's happening: Herbal supplement maker Herbalife (HLF) has been all over the news as of late. Activist investor Bill Ackman has accused the company of being nothing more than a ponzi scheme, allegations which instantly sent the stock into freefall. He has put his money where his mouth is, investing $1 billion in puts on HLF. On the other side of the debate, Carl Icahn has stepped in to take advantage of the recent sell-off by buying a sizable portion of the company. Icahn recently reported that he has acquired a 13% stake in Herbalife. The stock has managed to make back a lot of its initial losses, but is still down 26% since the end of November.

 

Technical analysis: HLF was recently trading at $40.19, down $32.81 from its 12-month high and $15.95 above its 12-month low. Technical indicators for HLF are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $36 and seen resistance below $42. Of the nine analysts who cover the stock seven rate it a "strong buy," and two rates it a "hold." The stock receives Standard & Poor's 3 STARS "hold" ranking.

 

Analysts' thoughts: The cloud hanging over Herbalife will likely continue to weigh on the stock in the upcoming months. With two strong investors battling it out over the company, we expect to see ongoing headlines surrounding Herbalife. The Federal Trade Commission is reportedly conducting its own investigation into the company's business, and any negative findings will result in a sharp sell-off in the stock. The company recently reported its fourth-quarter results, posting a 20% jump in sales and topping analyst estimates for earnings. With all of the negative headlines surrounding the company, there has still not been any concrete evidence showing that it is merely a pyramid scheme. Operating a direct marketing business will always result in some comparison to pyramid schemes, but many big name companies such as Avon (AVP) and Amway have been successful in doing so in accordance with the law, and until solid evidence is brought against Herbalife, there is no reason to believe it is not also operating under the law. Expect to see more headlines, but don't expect to see another big dip unless something concrete is comes to light.

                                            

Stock-only trade: If you're looking to establish a long stock position in HLF, consider buying the stock when it is below $39.50 and sell if it falls below $35.55 or dips more than 10% or take profits if it gets to $45.50.

 

Option trade: If you are looking for a hedged options trade on HLF, consider a May 21/26 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 33.1% to cause a problem.

 

Speculative call-only trade: With so much uncertainty surrounding the stock at the current time, we would not choose to set up a speculative option-only trade. We will revisit the situation in a couple months to re-evaluate the situation.

 

4) Several key retailer stocks reporting earnings during the week of February 25

What's happening: After a steep sell off last summer, retailer Aeropostale (ARO) has been in a tight sideways trading pattern since last October. While the company is not due to report its fourth-quarter results until March 14, there are several other retailers that are going to report this week, and Aeropostale will most likely trade in along with the rest of the industry. We will get earnings reports from Macy's (M), Limited Brands (LTD), JC Penney (JCP), and TJX Companies (TJX), all of which shed some light on the retail industry and influence Aeropostale, and how ARO will trade during the week.

 

Technical analysis: ARO was recently trading at $13.59, down $9.46 from its 12-month high and $1.83 above its 12-month low. Technical indicators for ARO are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $12.50 and seen resistance below $13.80. Of the 19 analysts who cover the stock seven rate it a "strong buy," two rate it a "buy," nine rate it a "hold", and one rates it a "strong sell". The stock receives Standard & Poor's 4 STARS "buy" ranking.

 

Analysts' thoughts: With so many names in the retail industry gearing up to report earnings, we can reasonably expect some big moves in the sector. ARO has been one of the weaker retail stocks over the last year, but if we start to see positive earnings from its competitors we would expect to see strength from ARO as well. January retail sales numbers were strong, and if those sales result in a wave of positive earnings reports we expect the entire sector to trade higher, taking Aeropostale with it.

 

Stock-only trade: If you're looking to establish a long stock position in ARO, consider buying the stock when it is below $13.75 and sell if it falls below $12.40 or dips more than 10% or take profits if it gets to $15.75.

 

Option trade: If you are looking for a hedged options trade on ARO, consider an April 7/12 bull-put credit spread for a 65-cent credit. That's a potential 14.9% return (30.8% annualized*) and the stock would have to fall 8.1% 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 $11 call. If ARO rises just 7.0% 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.

 

5) February auto sales due March 1

What's happening with HMC: 2012 was a good year for auto companies and that strength carried over into January of this year. For Honda (HMC), January was a good month, with sales rising 13%, but that was slower than the pace it set in 2012, during which sales for rose by 24%. Honda has been trading in a sideways pattern since the start of the year after making a strong move to the upside during December of 2012.

 

Technical analysis: HMC was recently trading at $37.72, down $1.63 from its 12-month high and $9.22 above its 12-month low. Technical indicators for HMC are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen resistance below $38.50. Of the two analysts who cover the stock one rates it a "strong buy", and one rates it a "hold." The stock receives Standard & Poor's 3 STARS "hold" ranking.

 

Analysts' thoughts: We expect to see the auto industry continue to improve in February and believe that all the major auto makers, including Honda, will report good February sales numbers. The one thing to keep in mind is that the European market will likely continue to show weakness, but we believe that Honda will be able to overcome weakness in Europe to post solid sales gains during the month. This proved to be the case in January. Despite rocky relations between Japan and China, Honda posted a 13% jump in January and we expect another strong month in February.

 

Stock-only trade: If you're looking to establish a long stock position in HMC, consider buying the stock when it is below $37.50 and sell if it falls below $33.75 or dips more than 10% or take profits if it gets to $43.15.

 

Option trade: If you are looking for a hedged options trade on HMC, consider an April 30/35 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (36.9% annualized*) and the stock would have to fall 6.1% 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 $35 call. If HMC rises just 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.

 

 

*Annualized returns provided for comparison purposes only

 

Get InvestorsObserver's free report 18 Warning Signs to Know When to Dump a Stock

 

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

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