Earnings Season Trading Opportunities Part 1

03/22/2016 9:35 am EST


Michael Berger

President & Founder, Technical420.com

After BlackRock said that the United States will avoid a recession, Michael Berger of Technical420.com, highlights three stock he likes before earnings season in this first of five series of articles that provide trading ideas.

Although it is only March, 2016 has been a wild year for the global stock market. After the United States stock market recorded their worst start to a year on record, the market rallied back and the Dow Jones and S&P 500 are trading in positive territory.

The weakness, which was driven by fears related to global growth and oil, had the market screaming for a recession and investors were pulling money out of some funds at record levels.

Now, all of a sudden, those fears have evaporated and BlackRock Inc. (BLK), the world’s largest money manager, says investors should trim their Treasury holdings because the United States will avoid a recession.

Earnings Season Creates Perfect Trading Environment

The market has rallied back nicely over the last month and the Dow Jones, S&P, and Nasdaq are up 7.5%, 6.9%, and 6.7%, respectively during this time.

This rally has caused many analysts, investors and traders to forget about the companies that did not perform well during the prior earnings season, as well as the companies that performed well.

We believe that this situation has created a perfect set up for traders as we approach earnings season. During the next two weeks, we are going to highlight stocks that we believe represent good opportunities to buy or short prior to earnings.

Three Buy Opportunities

To start this series off, we are going to highlight three stocks that we believe represent attractive investments. These stocks are Rent-A-Center, Inc. (RCII), Palo Alto Networks, Inc. (PANW), and SVB Financial Group (SIVB).

We have become increasingly favorable on RCII because we think that near-term earnings estimates will prove to be too conservative as 2016 continues to unfold. We expect to see management repay approximately $200 million in debt during the year which will improve financial flexibility and allow RCII to repurchase its bonds, stock, and/or increase its dividend. Valuation is very attractive when examined against pretty much any metric and we see value in shares on weakness.

During the previous quarter, PANW not only beat expectations but the company also guided higher for third quarter earnings. These impressive results came despite widespread fear pertaining to macroeconomic concerns and Cisco’s weaker than expected report in January. We expect to see continued strength from PANW as the company continues to drive a next generation replacement cycle of outdated firewall solutions. We believe that we are in the middle of a multi-year security spending cycle that should disproportionately benefit PANW as the dominant security platform vendor.

SIVB operates in one of the hottest economic markets in the United States (Silicon Valley) and is focused on booming industries (technology, life sciences, venture capital, and private equity). During the fourth quarter, SIVB beat on earnings, loan growth, and net interest income. After initially trading weak after reporting these results, SIVB rallied back and shares are up approximately 15% during the last month. We expect to see another strong quarter from SIVB and we would be buyers on weakness.

By Michael Berger of Technical420.com

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