Although we all need a game plan each and every day that we enter the market, it is especially important during earnings season. Trying to game earnings has buried many, but it has also rewarded the few who have mastered the game.

Unless you are the best of the best, we generally believe there is no reason to "game" earnings and try to capitalize on how you think the market will react to a particular release.

But if you so dare to play in these waters, we felt obligated to at least scour the environment and alert you to five stocks you must avoid this week.

Before we get into this week's picks to avoid, this is how last week's Stocks to Avoid fared:

Pilgrim's Pride (PPC): Down 9.1% for the week.

Energizer Holdings (ENR): Up 1.6% for the week.

Eastman Kodak (EK): Down 8.7% for the week.

Jones Soda (JSDA): down 5% for the week.

Centex (CTX): Up 8.2% for the week.

First on this week's list is Reliant Energy (RRI). Investors should stay away from this Houston-based electric utility company, which reports second-quarter earnings on Tuesday, Aug. 5. Analysts aren't expecting much. Higher coal costs and unusually hot summer weather should eat away at margins.

Credit Suisse has an outperform rating on the stock but warms that investors should stay away before the second-quarter earnings call. The stock has experienced heavy selling pressure, down 31% on the year, but it may not be over.

The bear case for the company remains soaring spot coal prices in comparison to past prices. A large concern for investors is how they will price multiyear contracts relative to current coal prices.

The company missed last quarter's earnings by 22%, and it missed the year ago period by 166%.

Over the last six months, company insiders have been reducing their stakes in Reliant Energy. There have been 11 sale transactions and no stock purchases. These directors may believe that downside potential still remains in Reliant.

The next stock to stay away from is Whole Foods Market (WFMI). The Austin, Texas-based chain of organic grocery stores will announce second-quarter earnings this Tuesday. Its past few earnings reports have disappointed investors -- the company has missed its forecasts for the past three quarters.

A report from Goldman Sachs summed it up the best. Analysts at Goldman ''just don't see many positives for the organic food retailer." They expect the company to show another drop in sales growth and heavy earnings pressure, which is down 12% year over year. Goldman also believes profit growth in 2009 will be below average.

For there to be any hope going forward, Goldman would like to see Whole Foods cut down on store growth, focus on cost reductions and lower the dividend.

Goldman has a neutral rating on the stock and recently dropped its price target to $26.

Whole Foods, whose shares have plunged 47% since the beginning of the year, has also experienced a large amount of insider selling. On 10 different occasions, a handful of Whole Foods officers have sold over 100,000 shares. During that same six-month period, there were no insider purchases.

Investors should also steer clear of Playboy (PLA) next week. The company will announce second-quarter earnings on Wednesday, Aug. 6. The company came up short of its past two earnings reports -- most significantly last quarter's results, which missed the mark by 250%.

In the first quarter, revenue dropped 8% year over year to $78.5 million, and EPS shifted to a loss of 9 cents from a profit of 4 cents. Return on equity has decreased to 0.2%, and the gross profit margin is currently lower than the target of 31%. The profit margin of -4% is way below industry average.

Playboy was recently downgraded to sell at TheStreet.com Ratings. TheStreet.com Ratings had this to offer: "Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 44.06%, worse than the S&P 500's performance. Playboy Enterprises had been rated hold since Nov. 17, 2006."

With consumers battling higher costs at the pump and in the grocery store, a subscription to Playboy is one expense they don't need.

Another company headed for a bad week is Blackstone (BX). When this New York-based private equity firm reports second-quarter earnings on Wednesday, investors should have their money somewhere else.

Blackstone has missed its past three quarterly estimates. The worst loss was last quarter, when the firm's revenue came in below expectations by over 140%. In the first quarter, it lost $251 million, compared with a profit of $1.13 billion a year ago. The company was hurt by a weaker leveraged buyout market, and because its arsenal of various companies, it lost significant value.

Recently, Jefferies initiated coverage on Blackstone with an underperform rating. The analysts fear that until the lending environment improves, Blackstone will continue to loss money. Also, its private equity and real estate portfolio is not holding up as it had hoped, which creates further downside to this stock.

This company makes most of its money when Wall Street is swamped with acquisitions and IPOs. Unfortunately for this stock, the record level of deal activity occurred from 2005 to 2007 when the lending market was on fire, and we'll most likely not see another lending environment like that one for a while.

Blackstone is trading around $18 and is down 17% on the year, but Jefferies believes the stock will be trading at the $14 level in the near future.

And finally, another stock that could suffer this week is American International Group (AIG). The world's largest insurer is positioned for another dismal quarter. When it reports second-quarter earnings on Wednesday, stay away.

The company has come up short of its earnings expectations for the past three quarters. For the last two quarters, the company experienced losses of $20 billion.

The company was downgraded to market perform from outperform by analyst John Hall at Wachovia. Hall mentioned: "We expect the value of AIG's core insurance franchise to be obscured by its credit exposure in the form of (1) credit default swaps and (2) securities in its investment portfolio."

CDO valuations got worse during the second quarter, which could amount to losses of as much as $7 billion, said Hall. Hall lowered his 2008 earnings estimates for AIG by 39%. He now expects 2008 operating EPS in the range of $1.15 a share, down from $1.90 a share.

Since the beginning of 2007, the biggest mortgage insurers have amounted losses of more than $77 million, half of which has come out of AIG's pocket.

Hall concluded: "We believe the world's largest insurer will continue to be plagued by its exposure to the US residential real estate market and its general exposure to the credit markets over the next year."


A note from James Altucher:

Every weekend I send an email to Jim Cramer and several hedge fund managers about the most interesting portfolios posted on Stockpickr that week. Usually those portfolios not only list stocks according to a theme but also offer significant analysis as to why the stocks are cheap.

Here are some examples:

Stocks related to drilling the Marcellus Shale

MLPS with yields above 7%

Microcaps trading for less than tangible book

Stocks that do well after Hurricanes

Here's the challenge: Build a portfolio at Stockpickr.com with great analysis, and send me the link. Each great portfolio (with analysis) will get posted on TheStreet.com with your byline (as a "Stockpickr Guest Columnist") and will be included in my email I send to Jim and the other
hedge fund managers on my list.


Posted Aug. 4, 2008