While this first week of earnings season is typically light in terms of the number of reports, that will not be the case next week. We�ll have a treasure trove from which to identify potential earnings trades — which, as we�ve said before, can be just as much of a challenge as having little to pick through.
Let�s look toward a big name reporting Monday. International Business Machines Corp. (NYSE:IBM) reports after the bell on Monday, with analysts looking for $3.22 per share. (The whisper number is $3.27.) �That number represents year-over-year growth of 14.2%, a relatively modest figure compared to the average 18.7% increase logged during the past four quarters.
One thing you can say about IBM — Big Blue doesn�t often miss an estimate. You�d have to go all the way back to April 2005 to find the last time the company fell short. So, beating this time around probably won�t be an issue, especially with rather muted expectations.
Of more importance than beating, of course, is how the stock does after reporting. IBM gets a gold star in that category as well. The shares have gained ground in the week following the past five reports, with an average weekly gain of around 6% after the past three.
Currently, the shares are dueling with new high territory around the $186 mark. The stock reached an all-time peak during Wednesday�s session at $188 before pulling back. Taking out the July peak just below $186 was a key technical move this week.
Sentiment toward IBM is not as ebullient as one would think, given its record price. The short-interest ratio is just below the multiyear peak reached in April. And 11 of 26 analysts rate the stock a �hold,� leaving room for upgrades for a stock that has outperformed the Dow for more than a year.
IBM is a model of consistency and reliability when it comes to earnings. That�s a hard combination to find. While it�s not a sure thing, it�s pretty close. Solid earnings track record, strong performance after earnings, new all-time highs, and enough skepticism to add more buying pressure is a bullish combination.
What�s more, IBM options are very reasonably priced. Buy the in-the-money IBM Nov 185 Calls for around seven bucks, which should give ample time for a post-earnings move to play out.
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