5 stocks to watch for next week

Costco and Tiffany to report earnings. Consumer confidence index for May to be released. Carnival slashes prices to attract customers after a string of accidents. Pending home sales for April are due.

By MSN Money Partner May 24, 2013 3:15PM

Stock market report (© Corbis)By Michael Fowlkes, InvestorsObserver


Costco reports earnings Thursday

What's happening: Mega retailer Costco (COST) will report its fiscal third quarter results before the market opens on May 30. Headed into its quarterly report analysts have forecast earnings of $1.03 per share, up from $0.88 a share during the same period last year. The stock has been a strong performer thus far in 2013, gaining 15.7% so far year to date.


Technical analysis: COST was recently trading at $113.38, down $1.34 from its 12-month high and $31.12 above its 12-month low. Technical indicators for COST are bullish and the stock is in a strong upward trend. The stock has support above $110.00. Of the 20 analysts who cover the stock 11 rate it a "strong buy," seven rate it a "hold," and two rate it a "strong sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: We have seen a string of disappointing quarterly reports from Costco's competitors, and investors should be wary of Costco's numbers. The latest retailer to disappoint Wall Street was Target (TGT), which failed to hit its revenues forecast due to cool spring weather and higher payroll taxes. Costco has posted better than expected earnings during each of its last five quarters, and it will need another strong quarter if it hopes to hang on to the gains it has enjoyed so far this year. With both Target and Wal-Mart (WMT) already disappointing Wall Street, there is a decent chance that we will see the same with Costco. If you have big gains in the stock you may want to lock in some profits ahead of the report. If you are looking to get into the stock you may want to sit on the sidelines for now and use any weakness following its earnings report as a buying opportunity.


Stock-only trade: With the recent strength in the stock, it is now trading with a price-to-earnings ratio of 25.4, which is a bit higher than we like to see in a stock-only trade. We will hold off on a new position at the current time and wait for a slight pullback before jumping in.


Option trade: If you are looking for a hedged options trade on COST, consider a July 103/105 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (68.7% annualized*) and the stock would have to fall 7.2% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $110 call. If COST 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.



Consumer confidence due Tuesday
What's happening:
On May 28, the Conference Board will release its May consumer confidence numbers. Retailers such as Target (TGT) have been strong this year, but the environment remains shaky and a weak consumer confidence reading could impact the entire sector. Target stock is up 16.9% year to date, but recently hit some selling pressure after reporting weaker than expected first quarter results.


Technical analysis: TGT was recently trading at $68.40, down $3.51 from its 12-month high and $12.46 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 $68.00 and resistance below $70.50. Of the 18 analysts who cover the stock 11 rate it a "strong buy," and seven rate it a "strong sell." The stock receives Standard & Poor's 5 STARS "Strong Buy" ranking.


Analyst's thoughts: Target had been in a strong upward trend until the stock reported disappointing quarterly results on May 22. The company's first quarter profit fell 29%, on revenues of $16.71 billion. Analysts had forecast revenues of $16.82 billion. The company blamed unusually cool spring weather and higher payroll taxes for the weaker than expected revenues. The poor revenue figure resulted in a 4% sell off in the stock. A strong consumer confidence reading should help TGT regain some of its recent losses, but if we get a surprise disappointment the stock could easily trade lower.


Stock-only trade: If you're looking to establish a long stock position in TGT, consider buying the stock under $68.50, and sell if it falls below $64 or take profits if it gets to $75.


Option trade: If you are looking for a hedged options trade on TGT, consider a July 60/65 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (68.7% annualized*) and the stock would have to fall 4.2% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $65 call. If TGT rises just 3.6% 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.



Carnival lowers forecast and ticket prices to entice tourists
What's happening:
Cruise operator Carnival (CCL) has had a run of bad luck over the past couple of years. The company has faced shipwrecks, and several breakdowns on ships that have resulted in lower demand for their cruises. The company has been forced to lower its ticket prices in order to entice tourists onto its ships, and the company recently lowered its full year earnings guidance to a range of $1.45 to $1.65 a share, down from its previous forecast of $1.80 to $2.10. The stock has traded down 8.9% year to date.


Technical analysis: CCL was recently trading at $33.04, down $6.91 from its 12-month high and $2.39 above its 12-month low. Technical indicators for CCL are bullish and the stock is showing signs of a possible trend reversal. The stock has resistance under $35.25. Of the 15 analysts who cover the stock three rate it a "strong buy," and 12 rate it a "hold." The stock receives Standard & Poor's 5 STARS "Strong Buy" ranking.


Analyst's thoughts: It is going to take a while before Carnival is able to put its series of recent mishaps behind it. Yes, people do tend to have a short memory when bad things happen, but there have just been too many instances as of late involving Carnival and its aging fleet of ships. The most recent trouble is being called the "poop cruise." Reports and images of occurrences on the Triumph, which was stranded for five days in the Gulf of Mexico have resonated with tourists and forced the company to slash its rates. In an attempt to bring passengers back onto its ships, the company has some cruises starting as low as $38 per night. The price cuts are a clear indicator of just how difficult it has been for Carnival to fill its ships.


Stock-only trade: If you're looking to establish a long stock position in CCL, consider buying the stock under $33, but be ready to get out quick in case the stock continues to trade lower. Set a stop loss at $31 or take profits if it gets to $36.50.


Option trade: If you are looking for a hedged options trade on CCL, consider a July 28.50/30.50 bull-put credit spread for a 20-cent credit. That's a potential 11.1% return (68.7% annualized*) and the stock would have to fall 7.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $30 call. If CCL 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.



Tiffany unveils earnings Tuesday

What's happening: Luxury retailer Tiffany (TIF) will report its first quarter results before the market opens on May 28. Going into the quarterly report, analysts have forecast earnings of $0.52 per share, down from $0.64 a share during the same period last year. With the economy improving, shares of Tiffany have been strong over the last year, with the stock gaining 35.8% year to date.


Technical analysis: TIF was recently trading at $77.32, down $2.03 from its 12-month high and $27.60 above its 12-month low. Technical indicators for TIF are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $71.00. Of the 17 analysts who cover the stock two rate it a "strong buy," two rate it a "buy," twelve rate it a "hold," and one rates it a "strong sell." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: After missing analyst estimates for four straight quarters, Tiffany was able to post better than expected numbers for its fourth quarter in March. Investors have become very optimistic towards the stock, but an earnings miss could quickly erase much of its recent gains. Revenue and earnings growth has been slowing, and the company faces some serious challenges on the horizon. The Tiffany brand is very strong, but it may be forced to lower its prices in order to boost its revenue, and this could have a negative impact on its brand. The stock has upwards momentum on its side, but shareholders should pay close attention to its earnings since there is a sizable amount of downside risk in the event of a disappointing quarter.


Stock-only trade: Tiffany has been on a strong run over the last six months, and the stock has risen to a point where it is trading with a price-to-earnings ratio of 24, and is just 2.6% under its 52 week high. With the stock trading so close to its 52 week high and with a price-to-earnings ratio of 24 we are not looking to set up a stock-only position on the stock at the current time.


Option trade: If you are looking for a hedged options trade on TIF, consider a June 65/70 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (116.4% annualized*) and the stock would have to fall 8.9% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the November $70 call. If TIF 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.



Pending home sales due Thursday
What's happening:
On May 30 the National Association of Realtors will announce pending home sale numbers for April. While the numbers are based on the sale of existing homes, a poor reading will have an impact on the entire housing sector, including homebuilder KB Home (KBH). The housing market has been improving, and KBH has been a strong performer, trading up 46.2% year to date.


Technical analysis: KBH was recently trading at $23.04, down $2.10 from its 12-month high and $16.58 above its 12-month low. Technical indicators for KBH are bullish and the stock is showing signs of a possible trend reversal. The stock has support above $22.00 and resistance below $24.50. Of the 18 analysts who cover the stock two rate it a "strong buy," one rates it a "buy," 13 rate it a "hold," one rates it a "sell" and one rates it a "strong sell." The stock receives Standard & Poor's 2 STARS "Sell" ranking.


Analyst's thoughts: I do not expect to see anything alarming in the April pending home sales reading. The Fed's policy to keep interest rates near-zero has brought buyers back into the market, and we are seeing home prices start to rise. Rising home prices and low interest rates continue to bolster the housing market, and I expect to see continued improvements through the remainder of the year.


Stock-only trade: If you're looking to establish a long stock position in KBH, consider buying the stock under $23 and sell if the stock drops under $20.50 or take profits if it gets to $26.50.


Option trade: If you are looking for a hedged options trade on KBH, consider a July 19/21 bull-put credit spread for a 40-cent credit. That's a potential 25% return (154.7% annualized*) and the stock would have to fall 7.1% to cause a problem.


Speculative call-only trade: For those with an appetite for higher risk and bigger returns, consider buying the October $19 call. If KBH rises just 4.6% 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 long position in Wal-Mart (WMT) and does not have direct ownership in any of the other stocks mentioned.

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