Which Stocks Look Ready to Surge or Sink After Earnings This Week?

the BullMarket.com Staff
October 21, 2012

Stocks tend to be most volatile around earnings season, when a good or bad report can make or break it. However, a good or even great earnings report doesn't necessarily translate into a huge pop for a stock.

During earnings season, BullMarket.com publishes a comprehensive 25- to 40-page Earnings Preview report for the week ahead each Friday.

Over the past year, BullMarket.com used the data it has collected to correctly predict investor reactions for approximately two-third of the stocks it's previewed.

In its latest earnings preview, BullMarket.com looks at several popular stocks, including Apple (AAPL), Amazon.com (AMZN), Coach (COH), Panera Bread (PNRA), Facebook (FB), Broadcom (BRCM), F5 Networks (FFIV), Akamai (AKAM), Corning (GLW), Potash (POT), Caterpillar (CAT), and Netflix (NFLX).

Here is just a tiny sample of what BullMarket.com wrote about Potash:

Potash has topped analyst EPS estimates four of the past eight quarters, missing estimates three times and meeting the consensus once. During that period, the stock has risen the next session four of eight quarters. Seasonally, the stock has risen three of the past four years.

Last quarter,Potash posted a -38% drop in its second-quarter profit and predicted weaker-than-expected results for the remainder of the year.

It reported $522 million in Q2 net income, or 60 cents per share, down from $840 million, or 96 cents per share, a year earlier. Results were hurt by a -$341 million impairment charge related to its investment in the Chinese fertilizer maker Sinofert Holdings.

"We reported earnings of 60 cents per share for the second quarter. But the number in the headline does not fully reflect the underlying strength of our business. In fact, our earnings would have set a second quarter record if not for a non-cash impairment charge related to our investment in Sinofert that had an impact of 39 cents per share," CEO Wlliam Doyle said.

Lower volumes and prices for its phosphate-based nutrients hurt profit margins in that business, while lower natural gas prices helped boost profits from its nitrogen business. ...

More recently, Potash announced that its earnings would fall below its previous full-year forecast of $2.80-$3.20 per share and at the low-end of its Q3 guidance of 70-90 cents per share.

Outside of earnings, we like Potash Corp's position in the fertilizer industry given its dominant position and the high barriers to entry. As a reminder, the fertilizer industry has three main nutrients: nitrogen, phosphate, and potash. Nitrogen is the least defensive of the fertilizer markets given that it is produced not mined, but North American producers are benefitting from low natural gas prices, which is the main feedstock. The nutrient tends to be the most volatile in price and margins; however, volume tends to be steadier compared to potash and phosphate. Phosphate is mined, but is more abundant than potash, as it is produced in over 40 countries around the world and national governments control about half the world's supply.

Potash, by contrast, has the highest barriers to entry, and carries the highest margins in good and bad markets, although farmers sometimes try to stretch the periods they use the fertilizer. It's found in only 12 countries worldwide and a new large mine project hasn't come online since 1985. ....

The full BullMarket.com earnings analysis includes a look at historical earnings data and EPS trends for the companies above and more; examines past investor reactions to earnings in various contexts; gives options activity analysis; reviews previous-quarter earnings; and gives an opinion on both what earnings will look like and how investors will react based on the aforementioned data points.

Just a few of the correct calls BullMarket.com made for Q3 so far were:

  • to be bullish on eBay (EBAY) ahead of earnings.
  • to be bullish on Cree (CREE) ahead of earnings.
  • to be bearish on Chipotle Mexican Grill (CMG) ahead of earnings.
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