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Which Stocks Look Ready to Pop and Drop with Earnings Next Week?

the BullMarket.com Staff

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 20- to 30-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 nearly two-third of the stocks it's previewed.

In its latest earnings preview, BullMarket.com looks at several popular stocks, including Intel (Nasdaq: INTC - News), Cree (Nasdaq: CREE - News), IBM (NYSE: IBM - News), Qualcomm (Nasdaq: QCOM - News), F5 Networks (Nasdaq: FFIV - News), eBay (Nasdaq: EBAY - News), Chipotle (NYSE: CMG - News), Microsoft (Nasdaq: MSFT - News), and Intuitive Surgical (Nasdaq: ISRG - News).

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

IBM is the world's largest IT services company. It's a one-stop technology shop with global capabilities including services, software, hardware, fundamental research, and financing. A pioneer in technological development, IBM is approaching its 100th anniversary of incorporation, and it has a flexible business model that has allowed it to evolve over time. The company's customers represent virtually every business sretail, and everything in between. ...

Last quarter, IBM said its fourth-quarter profit rose to $5.49 billion, or $4.62 per share, from $5.26 billion, or $4.25 per share, a year earlier. Revenue rose 2% to $29.49 billion.

On an adjusted basis, IBM earned $4.71 per share. Analysts had expected EPS of $4.61 on revenue of $29.7 billion.

For 2012, IBM forecast EPS of $14.85, topping the $14.77 analysts were expecting.

"Looking at the fourth quarter by segment, we continued to build our momentum in software, our performance reflecting both strong demand for our offerings, and leadership sales execution. Our software revenue was up 9%, driven by aggressive growth in our focus areas like Smarter Commerce, Business Analytics, and Storage Solutions. Our software profit was up 12%," CFO Mark Loughridge said.

"Our Services businesses delivered powerful margin and profit growth, with combined pre-tax income up 17%. Services revenue growth was again led by growth markets, which were up 13% at constant currency. Our total Services backlog ended the year at $141 billion. At constant currency, that's flat year to year and up $5 billion since September."

Looking at the balance sheet, IBM ended the quarter with a cash balance of $11.9 billion, up $600 million from September. Total debt was $31.3 billion, of which $23.3 billion was in support of IBM's financing business, which is leveraged at just over seven-to-one. Non-financing debt was $8 billion, up $600 million from the third quarter and up $2.2 billion from a year ago. ...

IBM has beaten analyst EPS estimates each quarter over the past two years. During that time, the stock has risen three of eight quarters. Seasonally, the stock has risen two of the last four years. ...

Outside of earnings, we think IBM has one of the strongest brands in technology, and the company has done a tremendous job of transforming itself over the years, divesting businesses such as its HDD operations, PCs, and printing, while focusing on services and software. However, it hasn't given up on its hardware business, and has melded the three businesses to become the best-of-breed enterprise technology company at the forefront of the hottest trends in tech.

Its long-term contracts, meanwhile, create a nice recurring revenue stream and give it a strong, visible free cash flow stream. This makes it one of the most defensive businesses in tech, as well. In addition, there are high switching costs associated with moving to competitor's products, which creates a solid moat around its products and services. Software and emerging markets represent solid growth opportunities. ...

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 in Q4 were:

  • to be bullish on Apple (Nasdaq: AAPL - News) ahead of earnings.
  • to be bearish on Amazon.com (Nasdaq: AMZN - News) ahead of earnings.
  • to be bearish on Deckers (Nasdaq: DECK - News) ahead of earnings.
  • to be bullish on Salesforce.com (NYSE: CRM - News) ahead of earnings.
  • A daily investment service that is committed to creating long-term wealth for its members, BullMarket.com's Recommended List of stocks is up 33.3% from 2008-2011 versus a -14.4% return for the S&P, a 47.7% outperformance, topping the benchmark each year since the start of the Great Recession. Subscribers receive actionable market commentary, access to 40+ stock ideas on the Recommended List, and real-time trade alerts. Plus, sign up for a free trial today to view Bull Market's in-depth Special Reports - including its annual High Yield and MLP reports - and its timely Earnings Previews, which are published every Friday during the heart of earnings season. Get a Risk-Free Trial to Bull Market Today! (Please note returns are unaudited.)