5 Stocks That Could Move The Markets This Month

For some reason, this earnings season feels more important than past earnings seasons. It feels that way, most likely, because it is.

The market sits at a crucial juncture. The bulls desperately want to ignore what many bears, such as Seeking Alpha colleague James A. Kostohryz, think portends a crash of epic proportions:

I maintain my view that prior to late April of 2012, the S&P 500 will have initiated another leg down that will eventually take it to the 950-1,020 range. Notwithstanding the bullish configuration of the overall equity market, medium-term and long-term investors with cash should avoid the temptation of buying stocks and chasing them into this "bear trap." Furthermore, investors should consider taking advantage of the recent rally to reduce their risk exposures to equities... and ETFs such as SPY and QQQ.

While I'm not nearly as bearish as Kostohryz, I don't have a ton of faith in the present bull market. Not only does it hang its hat on hopes that Europe will not implode, its optimism rests on domestic data that, while somewhat upbeat, certainly does not instill confidence in a tried and true economic recovery.

Earnings results over the past couple of weeks came out mixed at best. What lies ahead this week could very well set the tone for the market for the rest of the month, if not the quarter. Solid earnings reports could help offset bad news, for example, out of Spain.

In this article, I highlight what I consider five of the biggest reports of the week. Not only could these reports have profound macro impacts, each company's stock sits at or near crucial psychological levels. Each company's results could send its stock comfortably past or well below these key thresholds.

It's quite entertaining to compare the YTD and 1-year charts (courtesy of Yahoo! Finance) for these five stocks.

YTD

Click charts to enlarge

1-Year

Apple (AAPL) and Verizon (VZ): Both companies report on Tuesday, but that's not why I group them together. I do, because, as is the case with most wireless carriers, Apple calls Verizon's shots.

Verizon needs to not only meet or beat iPhone 4S sales projections, it has to show investors that it stole wireless customers from other companies. The subsidy Verizon must pay to carry iPhone means that it cannot simply count on current customers making the switch to a new phone. It needs fresh meat it can hook into tight two-year contracts.

At the end of 2011, VZ closed above $40 for two days in a row. That level proved to be a wall of resistance. Without a strong report, there's little hope the stock can claw its way back to that level, exceed it and sustain.

For AAPL, $400 represents the critical level. I'm convinced that even a hint of bad news from the company sends the stock back below $400, possibly for the remainder of the year. If, however, Apple crushes estimates, the stock is perfectly positioned to wave the $400s goodbye before the end of the year.

The key here is sustained momentum. The company's last report - a relatively modest miss - equaled a burp. If it disappoints this quarter, that burp turns into a full-blown belch. Investors want a strong bridge between the current iteration of Apple greatness and the forthcoming iPad3, iPhone 5 and iTV. They don't want the train to stop, let off passengers, pick up a few parolees and take off in a few hours.

McDonald's (MCD): MCD is a $100 stock. It almost sounds strange saying that out loud, but it probably shouldn't. This is truly a great company. In a crowded space, it's the clear number one. Everybody else fights for the scraps, led by Burger King and Wendy's (WEN) at number two.

If McDonald's reports a strong Q4, as some analysts anticipate, expect the stock to hold above the $100 level, if not rise modestly. From there, we'll likely see a 2-for-1 split and then a slow, methodical rise back to the $100 level over the next couple of years. MCD is one of those stocks you use to teach your kids how to invest. As such, it needs to look "inexpensive" to the average investor.

McDonald's reports Tuesday.

Netflix (NFLX). I'm not sure what to expect when Netflix reports earnings on Wednesday. I'm pretty certain about what will happen in FY2012 -- full implosion -- but the company could still have some smoke and mirrors left in it. As I wrote on Friday:

I reserve the right to be insane or a complete and total idiot. However, I've looked at the numbers every way imaginable and I cannot figure how this apparent return to subscriber growth NFLX bulls seem so excited about can even begin to dig Netflix out of the abyss. The company will lose money in 2012. Its expenses - for content, international expansion and brand marketing - continue to increase exponentially. Forget the balance sheet, Netflix has a major cash flow problem; it's rapidly deteriorating with no end in sight.

That's the key for Q4 - subscriber growth. Netflix CEO Reed Hastings expertly shifted the world's attention to his price increase and Qwikster gaffes. This takes investors' eyes off of the company's endemic problems and focuses them on seemingly ephemeral roadblocks that a return to positive subscriber numbers will eventually cure. Or so the story goes.

Bottom line - Hastings' rhetoric only buys Netflix a little more time. As it flirts with the key $100 psychological level, just remember, we've seen this go down before. Don't let the dog and pony show that is Netflix's conference call fool you. No matter what happens Wednesday, the long-term bear case remains firmly intact. Nothing has changed from last year, as the stock irrationally motored to $300. In fact, the situation this year is much worse.

Starbucks (SBUX). Starbucks reports on Thursday. It touched a new 52-week high of $48.39 intraday this past Friday. And there's no better gauge of the economy than the place many Americans (and global citizens) spend a good chunk of their discretionary income at each and every day.

Like Amazon.com (AMZN), Starbucks knows how to use common tools to build loyalty like few brands can:

The Starbucks Card may be more critical to company sales than investors realize. Last year, purchases made on the cards accounted for 18% of company revenue. Starbucks doesn't split the transactions by country, but assuming purchases were almost all in the U.S., they accounted for 27% of domestic retail revenue. That compares with 13% in 2006.

Even more important is evidence suggesting card transactions are driving growth in sales. Since the fourth quarter of fiscal 2009, new Starbucks Card activations have had an 84% correlation with U.S. same-store sales. The correlation between same-store sales and reloads on existing cards was 59%...

The tight correlation between card transactions and sales should give investors more comfort that recent U.S. same-store sales growth, 7% in 2010 and 8% in 2011, can continue. The card may reinforce spending on products already deeply embedded into people's daily routines.

Now more than ever, investors need to be good stock pickers to achieve above average returns. It's anybody's guess as to whether or not strong results from Apple, Verizon, McDonald's, Netflix and Starbucks can prop up or give sustainable boosts to the broader market. One thing, however, is as close to certain as it gets -- with the exception of Netflix, many of the companies that announce earnings this coming week could be the ones that outperform the market no matter what happens in Europe or with the domestic economy.

Disclosure: I am long (AAPL), (VZ).