5 stocks to watch for next week

Weakness in Europe and Asia is a concern for UPS. Oil analysts surprise with lower than expected weekly report. Accenture and Dollar General to report earnings. Brinker concerned with lower consumer demand.

By MSN Money Partner Mar 22, 2013 10:13AM

Stock index Image Source Getty ImagesBy Michael Fowlkes, InvestorsObserver


Shipping industry under pressure after FedEx earnings

What's happening: On March 20, UPS's (UPS) main competitor, FedEx (FDX) disappointed Wall Street with worse-than-expected third quarter earnings report. FedEx blamed the disappointing quarter on weakness in Europe and Asia, and indicated that it sees the problem continuing through the year. UPS stock traded lower on the news, as analysts expect the company to run into similar problems.


Technical analysis: UPS was recently trading at $84.03, down $1.82 from its 12-month high and $14.47 above its 12-month low. Technical indicators for UPS are bullish and the stock is in a strong upward trend. The stock has recently seen support above $82. Of the 22 analysts who cover the stock 12 rate it a "strong buy," and 10 rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: With the dismal forecast FedEx made for the next few quarters, UPS is likely to remain weak until its next earnings report, which is due on April 25. When the company reports its first-quarter results, analysts will pay close attention to not only its most recent quarter, but any forecast that it makes for the remainder of the year. I expect to see UPS shares trade in a sideways pattern for the next month as traders will be wary of jumping into the stock given FDX's recent disappointment.


Stock-only trade: If you're looking to establish a long stock position in UPS, consider buying the stock when it is below $83.50 and sell if it falls below $75.25 or dips more than 10% or take profits if it gets to $96.


Option trade: If you are looking for a hedged options trade on UPS, consider a July 72.50/77.50 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (29.6% annualized*) and the stock would have to fall 7.2% 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 $82.50 call. If UPS rises just 5.0% 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.



Crude inventories shrink unexpectedly

What's happening: In mid-March, the market was surprised by government data showing that crude inventories shrank by 1.2 million barrels. Going into the report, analysts predicted an increase of 2 million barrels, so the lower inventory level was a big surprise. It was the first time in nine weeks that crude inventories fell. Following the lower-than-expected inventory report, shares of the major oil producers, including ConocoPhillips (COP) moved higher.


Technical analysis
: COP was recently trading at $60.44, down $17.37 from its 12-month high and $9.82 above its 12-month low. Technical indicators for COP are bullish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $58.50. Of the 16 analysts who cover the stock six rate it a "strong buy," one rates it a "buy," five 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.


Analyst's thoughts: ConocoPhillips has been stuck in a sideways pattern for most of the year, so the lower inventory reading was a much-needed catalyst, and one that could help the stock break out of its sideways pattern. As we head into the summer driving months, analysts are going to start paying a closer attention to inventory levels as a predictor of whether or not gasoline prices are going to rise. If we see back-to-back weeks of lower inventory levels, I expect additional strength for ConocoPhillips, and the stock could easily trade up to $62 in the near-term future.


Stock-only trade: If you're looking to establish a long stock position in COP, consider buying the stock when it is below $60 and sell if it falls below $54 or dips more than 10% or take profits if it gets to $69.


Option trade: If you are looking for a hedged options trade on COP, consider a May 52.50/57.50 bull-put credit spread for an 80-cent credit. That's a potential 19.0% return (117.8% annualized*) and the stock would have to fall 3.5% 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 $57.50 call. If COP rises just 1.1% 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.



Accenture reports 2Q results

What's happening: Accenture (ACN) will report its fiscal second-quarter results after the market close on March 28. Analysts expect Accenture to report earnings of $0.97 per share, which would be in-line with the same period last year. The stock has been moving higher since July and has managed to gain 15% since the start of the year.


Technical analysis: ACN was recently trading at $76.49, down $1.97 from its 12-month high and $21.55 above its 12-month low. Technical indicators for ACN are bullish and the stock is in a weak upward trend. The stock has recently seen support above $74 and resistance below $78. Of the 22 analysts who cover the stock 10 rate it a "strong buy," four rate it a "buy" and eight rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: Accenture has a solid history of posting in-line or better than expected quarterly earnings, and I see little reason to believe this quarter will be any different. Over the last eight quarters, the company has beaten analyst estimates seven times, and matched once. If the company is able to post better-than-expected numbers again this quarter, I believe we will see the stock continue to trade to the upside. The recent run-up in price has resulted in a price-to-earnings ratio of 20.7, so the upside may be limited. By comparison, Accenture's biggest competitor, IBM (IBM), is currently trading with a price-to-earnings ratio of just 14.7. I like Accenture, but I think the downside risk of an earnings miss is greater than the upside potential of strong earnings and would not try to place a trade on the stock ahead of earnings.


Stock-only trade: If you're looking to establish a long stock position in ACN, consider buying the stock below $76.50 and sell if it falls below $68.90 or dips more than 10% or take profits if it gets to $88.


Option trade: If you are looking for a hedged options trade on ACN, consider a May 67.50/72.50 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (84.4% annualized*) and the stock would have to fall 4.4% 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 $75 call. If ACN 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.



Dollar General reports 4Q results

What's happening: Discount retailer Dollar General (DG) is due to report its fourth quarter results before the market opens on March 25. Analysts have forecast earnings of $0.90 per share, versus $0.87 during the same period last year. The company's earnings have outpaced estimates for each of the last six quarters. After running into trouble during the second half of 2012, the stock has rebounded to start the year, managing to trade up 12.9% since the start of the year.


Technical analysis: DG was recently trading at $49.79, down $6.25 from its 12-month high and $10.06 above its 12-month low. Technical indicators for DG are bullish with the stock showing signs of a possible trend reversal. The stock has recently seen support above $47.25 and resistance below $52.50. Of the 19 analysts who cover the stock 12 rate it a "strong buy," and seven rate it a "hold." The stock receives Standard & Poor's 4 STARS "Buy" ranking.


Analyst's thoughts: I believe that Dollar General will continue its bullish trend. Higher payroll taxes will result in consumers seeking more discount goods, and in addition gasoline prices are starting to rise. As we head into the summer months, gasoline prices are likely to move significantly higher, leading to an even more cost-conscious consumer. The company plans to sell tobacco products starting in 2013, which will help boost revenues. Dollar General is expanding rapidly, and is currently in the process of completing 625 new store locations. The stock currently trades with a price-to-earnings ratio of 18, which is on the upper range of what I like for setting up a new position, but I believe there is still value, even at the current price.


Stock-only trade: If you're looking to establish a long stock position in DG, consider buying the stock 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 DG, consider a May 40/45 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 8.6% to cause a problem.


Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the August $48 call. If DG rises just 8.0% 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.



Higher payroll taxes impact restaurant sales

What's happening: Sales at casual dining restaurants fell 5.4% during the month of February from the same period last year. The decline in February follows on the heels of a 0.5% dip in sales in January. The decline represents the industry's biggest slump in three years, and is an indicator that consumers are cutting back on casual dining expenditures potentially because of the 2% jump in payroll taxes that took effect at the start of the year.


Technical analysis: Brinker (EAT) was recently trading at $35.62, $0.62 below its 12-month high and $9.12 above its 12-month low. Technical indicators for EAT are bullish and the stock is in a strong upward trend. The stock has recently seen support above $35.00. Of the 16 analysts who cover the stock six rate it a "strong buy," two rate it a "buy," seven rate it a "hold" and one rates it a "sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.


Analyst's thoughts: EAT has been trading strongly higher since the middle of November, but if we continue to see lower sales across the industry its recent run could be in jeopardy. After a strong climb during the latter part of February, the stock has been in a sideways pattern for the majority of March, and I expect the stock to continue its sideways trading pattern, and possibly even trade to the downside leading up to its April 23 earnings report. Gasoline prices are also on the rise, so this will add additional pressure to casual dining sales, and combined with the hike in payroll taxes 2013, could shape up to be a tough year for EAT.


Stock-only trade: If you're looking to establish a long stock position in EAT, consider buying the stock below $35 and sell if it falls below $31.50 or dips more than 10% or take profits if it gets to $40.25.


Option trade: We do not see any option only trades that we like at the current time on EAT. We will continue to follow the stock and look for any trade opportunities in the next month or two.


Speculative call-only trade: For those of you with an appetite for higher risk and bigger returns, consider buying the October $35 call. If EAT rises just 7.9% 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.


*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 stocks mentioned.

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