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5 Tech Stocks Poised for Big Earnings Moves - 21758 views
WINDERMERE, Fla. (Stockpickr) -- With earnings season now under way, market players should be hunting in the technology sector for trading opportunities. This sector is notorious for high volatility and stocks that make sharp moves off their quarterly results.
Take, for example, the move in Google (GOOG) last week after the search giant reported its numbers. The company reported earnings and revenue that smoked analysts’ expectations, sending the stock up sharply the following day. Shares of Google were trading at around $559 the day prior to earnings and closed near $600 after the report.
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Another great example of how sharply tech stocks can move off of earnings is IBM (IBM), which reported its numbers yesterday after the market close. IBM’s quarterly results failed to impress investors after revenue rose 8% to $26.16 billion, a tad below the average estimate of $26.26 billion. Shares of IBM are down almost 10 points, or about 5.3%, so far today.
Clearly, tech stocks are great trading vehicles off of their earnings reports. These names are very popular among the trading community due to the fact their liquidity and high trading volumes. The potential for big moves in tech stocks makes the entire sector worth watching for earnings trades.
Here’s a look at a number of tech stocks that are setting up to make sharp moves when they report earnings this week.
First on the list of tech stocks to watch this week is iPhone maker Apple (AAPL), which is set to report its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Apple to report revenue of $29.45 million on earnings of $7.28 per share.
If Apple hits those numbers, it will represent a 45% jump in sales from the same quarter last year and a 57% rise in earnings per share. Apple is on track to report its first year with sales above $100 billion. It’s hard to find anyone on the street who isn’t expecting a blowout quarter out of Apple. Some key numbers to watch for from Apple are iPhone sales that hit near 20 million and iPad sales that register around 10 million units. Look for Apple to issue guidance of $36.6 billion on earnings of $8.98 per share.
One risk to this quarter is that Apple has a new CEO, Tim Cook. Cook will be under the gun as he takes questions from analysts for the first time since taking over the reins from Steve Jobs. If Cook fails to communicate the company’s future direction, then the stock come under selling pressure following their report. This is exactly what happened to Google when they changed CEOs this year, and the stock took a beating the following day.
From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. That said, the stock recently broke out above $422.86 a share and climbed to $426.80, but has now failed that breakout and started to slide back below $422.86 with shares trading currently at around $416.
The way I would play Apple if you’re bullish and you’re convinced the stock is going to go up after earnings, is through buying some near-the-money call options. Look to play the $435 or $440 strikes with some risk capital. If you want to better your odds on Apple -- since buying any stock ahead of a report will give you no better than a 50% chance of being right -- then wait until after they report and buy the breakout.
If you’re willing to wait until after Apple's report, you could buy the stock once it crosses back above $426.70 a share with volume. Look for volume the following day that’s tracking in close to or above its three-month average volume of 17.2 million shares. If the stock opens up well above that price, then wait for a meaningful pullback before you consider getting long.
Keep in mind that Apple tends to sell off once its relative strength index is showing a reading of near 70 or higher, which indicates the stock is overbought. The current RSI reading on Apple is 63, so the best play on Apple might just be to wait for a big pullback after earnings. I would also like to point out that there’s a gap up in price on the chart for Apple that could easily get filled and would take the stock back towards $400 a share.
Another tech player that reports this week is networking equipment provider Juniper Networks (JNPR), which is set to report results on Tuesday after the market close. Wall Street analysts, on average, expect Juniper Networks to report revenue of $1.10 billion on earnings of 28 cents per share.
This company has registered double-digit year-over-year percentage revenue growth for the past four quarters. Over that timeframe, revenue has jumped by an average of 21.1%. That said, net income has dropped for each of the past two quarters, and last quarter the company missed Wall Street estimates by 4 cents.
If you want to see what a bearish stock chart looks like, then take a look at the chart for Juniper Networks. This stock has been doing nothing but downtrending for the past year with shares regularly making lower highs and lower lows. The stock also recently gapped down in August on huge volume from $32.17 a share to just under $26 a share. Since that huge gap down, the stock has trended lower to a recent low of $16.67 a share. Shares of JNPR have rebounded off that low and recently printed above $20 a share.
If you’re bullish on the this stock, then wait until after they report and buy the breakout once the stock trades above $22 to $22.50 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 12.3 million shares. I would only add to any long position once the stock then takes out that gap down day high near $26 a share. A move above that level should set the stock up to fill some of that huge gap down from August.
If you see weakness in this name after they report, and the stock fails to take out $22 a share to the upside, then short this once it drops below $19.50 on heavy volume. I would target a drop back towards $16.67 or possibly even lower if the bears smash this lower post-earnings.
If you’re looking for a play in the semiconductor sector, then consider Cirrus Logic (CRUS), which is set to release numbers on Wednesday after the market close. This company develops high-precision, analog and mixed-signal integrated circuits for a range of audio and energy markets. Wall Street analysts, on average, expect Cirrus Logic to report revenue of $102.66 million on earnings of 33 cents per share.
This company has managed to beat and miss Wall Street estimates during the past fiscal year. Cirrus Logic’s profit has been trending higher year-over-year by an average of more than threefold over the past five quarters. Revenue last quarter jumped 12.6% while costs of sales rose 26.6% to $44.5 million from a year ago.
From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. Almost every time this stock has traded down hear $13 to $12.50 a share in the past five months, the stock has been a screaming buy. In early October, CRUS hit $13.40 a share and has now run up to its current price of just over $17.50 a share.
The way I would play this stock is to wait until after its report and buy the stock if it breaks out above some huge overhead resistance at around $18.35 to $18.51 a share on strong volume. Look for volume that’s tracking in close to or above its three-month average action of 2.6 million shares. If the stock does break out post-earnings, then I expect it to make a march back towards its next significant overhead resistance level at around $20 to $22 a share.
If CRUS fails to break out above those levels mentioned above, then look to play this stock from the short side post-earnings once it crosses back below its 200-day moving average with volume. Target a drop back towards its 50-day moving average of $15.15 a share if the bears hammer this lower post-earnings.
Data storage company SanDisk (SNDK) is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect SanDisk to report revenue of $1.42 billion on earnings of $1.07 per share.
This company has reported a jump in revenue for four straight quarters, as seen by a 16.6% jump in the second quarter, a 19.1% rise in the first quarter, a 6.9% bump in the four quarter of last year and a 31.9% rise in the third quarter of last year. That said, profits have dropped in each of the last two quarters.
This stock is trending relativity strong heading into this report with shares trading around 7 points off its 52-week high of $53.61 a share.
From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. The stock has been in a strong uptrend since it bottomed in August at $32.24 a share. During that uptrend, shares of SNDK have been making mostly higher highs and higher lows, which is also bullish. The stock is now setting up to breakout off a solid earnings report.
The way I would play this name is to wait until after it report its results and buy the stock once it breaks out above $47.65 to $48 a share on big volume. Look for volume that’s tracking in close to or above its three-month average action of 9.1 million shares. A breakout post-earnings above those levels should set this stock up for a run back towards $51 to $53 a share or possibly even higher.
I would only short this name after they report if the stock drops below its 200-day moving average of $44.51 a share on heavy volume. A drop back below that key technical level should set this stock up for a fall back towards $42 to $40 a share if the bears pound this down post-earnings.
One more tech earnings play is software developer Microsoft (MSFT), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Microsoft to report revenue of $17.25 billion on earnings of 68 cents per share.
Revenue has been trending higher for Microsoft for the past four consecutive quarters, as seen by an 8.3% jump in the fourth quarter of last year, a 13.3% rise in the third quarter of last year, a 4.9% bump in the second quarter of last year and a 25.3% spike in the first quarter of last year. The company has also seen its net income trend higher for two straight quarters, and it’s reported a profitable quarter for the last eight quarters.
From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. During the past five months, this stock has found major buying support every time it has dropped lower near 23.50 to $24 a share. The stock is now setting up to breakout if the company can deliver a strong earnings report and bullish guidance that pleases Wall Street.
If you’re bullish on this stock, the only way I would buy this is if it breaks out after its report above some big overhead resistance at around $27.50 to $28 a share on huge volume. Look for volume that’s tracking in close to or above its three-month average action of 68 million shares. If we get the breakout post-earnings, I would then only add to the position if the stock takes out some move overhead resistance at around $29.10 a share. Target a run back towards its three-year high of $30.70 if the bulls push this higher post-earnings.
I would only get short this stock after its report if it fails to breakout above $28 a share, and you see big volume move into the name off any weakness. I would then add to any short off a failed breakout once the stock drops below both its 50-day of $25.79 and 200-day of $25.91 on strong volume. Target a drop back toward those big support zones near $24 to $23.50 a share.
Microsoft is one of David Tepper's top five Dow stocks.
-- Written by Roberto Pedone in Winderemere, Fla.
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.