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5 Earnings Stocks That Could Surge - 11865 views
WINDERMERE, Fla. (Stockpickr) -- With earnings season in full swing on Wall Street, it’s the perfect opportunity for market-players to create a powerful watch list of stocks that are due to report numbers that are also heavily shorted by the bears.
Short-sellers hate being caught short a stock that produces earnings that please the bulls. When this happens, we often see tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it’s never a great idea to stay short once a big short-covering rally is sparked by a bullish earnings report.
This is why I search the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short timeframe that your profits add up quickly.
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That said, let’s not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It’s important that you don’t go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you let the trend emerge after the market has digested all of the news.
That said, sometimes the stock is going to be in such high demand that you will miss a lot of the move. That’s why it can be worth betting prior to the report -- but only if you have a very strong conviction that the stock is going to rip higher.
Here’s a look at a number of stocks that could experience big short squeezes when they report earnings this week.
My first earnings short-squeeze candidate today is Bon-Ton Stores (BONT), which is set to report its results on Thursday before the open. This regional department store operator in the U.S. offers an assortment of brand-name fashion apparel and accessories for women, men and children, as well as cosmetics, home furnishings and other goods. Wall Street analysts, on average, expect Bon-Ton Stores to report revenue of $630.13 million on a loss of $1.63 per share.
This stock has been crushed in front of the quarter with shares down from a recent triple top at $10.50 a share to a recent low of $5.59 a share. Much of that beat down is due to the fact that Bon-Ton preannounced that total sales in July had fell 2.3% from the same period a year ago, and same-store sales had dropped 1.6% for July versus the same period. If all of this bad news is already in the stock, then anything positive management can say on the upcoming conference call could spark a relief rally.
The current short interest as a percentage of the float for Bon-Ton Stores is an extremely large 26.4%. That means that out of the 10.40 million shares in the tradable float, 3 million are sold short by the bears. This stock could easily explode into a big short squeeze since the short interest is so high and the float is so small. All that needs to happen is for the bulls to hear what they want to hear.
From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. The stock also recently formed a triple-top chart pattern at around $10.50 a share and broke below a major support zone at $9.30 a share on big volume.
The way I would play BONT is to wait until after it reports earnings and then buy the stock if it trades above $7 a share on strong volume. Look for volume that’s close to or greater than the three-month average volume of 211,000 shares. I would target a short-squeeze run that could take the stock back to its 50-day moving average of $8.88 a share if the bulls gain control of this stock.
I would short this name after its report only if the stock trades below $5.72 to $5.59 a share on big volume. Keep in mind that the relative strength index, or RSI, is currently showing a reading of 33 which indicates a very oversold condition. That doesn’t mean it can get more oversold and trade much lower. It just means to be more cautions on the short side.
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Another potential earnings short squeeze play is Perry Ellis (PERY), which is set to report results on Thursday before the market open. This U.S.-based apparel company designs, sources, markets and licenses its products nationally and internationally at multiple price points and across all major levels of retail distribution. Wall Street analysts, on average, expect Perry Ellis to report revenue of $203.95 million on earnings of 4 cents per share.
Perry Ellis has been on an earnings roll of late, beating Wall Street estimates for the past four quarters in a row. Revenues have been trending higher for the past three straight quarters, with the last quarter showing a rise of 30.8%.
I really like this play ahead of the quarter because the stock has been decimated by the bears during the past couple of months. PERY has fallen from a recent high of $31.50 a share to its recent low of $16.19 a share. That is one heck of a haircut, so unless the company has more bad news, this stock is very oversold.
The current short interest as a percentage of the float for Perry Ellis is a reasonably large 9.3%. That means that out of the 10.72 million shares in the tradable float, 1.20 million are sold short by the bears. It’s worth pointing out that the bears have been increasing their bets from the last reporting period by 19.1%, or by about 192,000 shares. The bears are pressing here with the stock already sharply down. If they’re pressing too much, this stock is going to short squeeze big time off a bullish report and guidance.
From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. The stock is also showing an extremely oversold condition as measured by its RSI, which shows a reading of 33. An RSI around or below 30 is often an area from which a stock can bounce big.
The way I would play PERY would be to wait until after its report, then buy the stock if it trades above some near-term overhead resistance at $19.45 a share on strong volume. Look for volume that’s close to or greater than the three-month average action of 173,000 shares. If it takes out $19.45 to the upside, then I think this stock could bounce big all the way back towards its 50-day moving average of $23.40 a share.
I would short PERY after its report only if the stock trades below some major near-term support at $16.19 a share on big volume. I would target $13 a share if that level is taken out after earnings.
Yet another earnings short-squeeze play in the retail apparel sector is The Buckle (BKE), which is set to release numbers on Thursday before the market open. This company markets a selection of casual apparel, including denim, sportswear, outerwear, accessories and footwear. Wall Street analysts, on average, expect The Buckle to report revenue of $209.02 million on earnings of 51 cents per share.
This company has seen its profits rise year-over-year by an average of 3.7% over the past five quarters. Revenue has gone up for the past three straight quarters. During the first week of August, The Buckle reported that same-stores sales rose by 6.8% in July, which was lower than Wall Street estimates of 10.5%. But the stock has been hammered going into the quarter, with shares down from a recent high of $46.66 a share to a recent low of $34.73 a share.
The current short interest as a percentage of the float for The Buckle is a rather large 16.8%. That means that out of the 26.43 million shares in the tradable float, 4.53 million are sold short by the bears. This is a huge short interest on a stock with a very low float. If The Buckle can report solid numbers and guidance, then this stock could easily see a big short squeeze.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been in a clear downtrend for the past two months where it was making lower highs and higher lows.
The way I would play this name form the long side would be to wait for BKE to report and then buy the stock if you see it trade above some big overhead resistance at around $39.34 a share -- the 200-day -- on heavy volume. Look for volume that’s close to or greater than 518,000 shares. I would add aggressively to any long trades if it then trades above its 50-day moving average of $42.16 a share.
I would short this name only if it drops below its most prominent support zones at $34.73 to $34.20 a share on big volume. I would short BKE if it takes those levels out after its report and look for a target of $30 a share.
One earnings short squeeze play in the energy transportation sector is Golar LNG (GLNG), which is set to release numbers on Thursday before the market open. This a mid-stream liquefied natural gas company engages primarily in the transportation, regasification and liquefaction of LNG. It acquires, owns, operates and charters LNG carriers and floating storage regasification units. Wall Street analysts, on average, expect Golar to report revenue of $53.75 million on earnings of 23 cents per share.
This stock is trending pretty strong heading into the quarter since shares are only about 7 points off its 52-week high of $39.90 a share.
The current short interest as a percentage of the float for Golar is 4.4%. That means that out of the 42.32 million shares in the tradable float, 1.89 million are sold short by the bears. This isn’t a huge short interest, but it’s more than enough considering the small float to pop this stock on a solid earnings report.
From a technical standpoint, this stock is currently trading below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. The stock recently dropped from a high of $39.90 a share to its current price of just above $32 a share. Look for volume that’s close to or greater than its three-month average action of 700,000 shares.
The way I would play Golar would be to buy this stock after their report once you see it trade back above its 50-day moving average of $34.70 on solid volume. Look for volume that’s close to or greater than its three-month average action of 700,000 shares.
I would only short this stock if it drops below some near-term resistance after its report at $31.50 a share on big volume. I would add to any short positions if it then takes out some more previous support at $27.50 a share.
One more earnings short-squeeze play is Salesforce.com (CRM), which is set to release numbers on Thursday after the market close. This company is a provider of enterprise cloud computing applications. Wall Street analysts, on average, expect Salesforce.com to report revenue of $528.78 million on earnings of 30 cents per share.
This company beat Wall Street estimates last quarter after reporting in-line results the quarter prior. Salesforce.com has produced double-digit year-over-year revenue growth for the past four quarters in a row, but net income has dropped in the last two quarters.
Jefferies recently made some positive comments on Saleforce.com ahead of the quarter and reiterated its buy rating and $165 price target. Jefferies thinks the company will beat billing expectations given their market checks and higher transaction volumes.
The stock has been beaten down hard going into this quarter, with shares falling from a recent high of $160 a share to its current price of just over $126. The current short interest as a percentage of the float for Salesforce.com is reasonably high 8.1%. That means that out of the 122.35 million shares in the tradable float, 9.86 million are sold short by the bears.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. Shares of CRM recently ran into some big overhead resistance at its 200-day moving average of $136.87 a share. The stock also failed before that at its 50-day moving average. That said, the stock has dropped sharply of late and it could rebound big if they report a solid quarter and guide higher.
The way I would trade CRM would be to buy this stock after they report if you see hold above its recent low of $123.23 a share. If that level can hold, then you can jump into this name and add to the position if you see CRM trade above its next significant resistance level of $128.35 a share on big volume. Look for volume that’s close to or greater than 2.4 million shares.
I would short this stock only if it takes out $123.23 a share on big volume after it's reported their results. I would add to any short trade if it then losses $117.66 a share.
Salesforce was also highlighted recently in "5 Stocks That Could Move Big on Earnings."
To see more potential earnings short squeeze candidates, including Sears Holdings (SHLD), Silicon Graphics (SGI) and GameStop (GME), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.