Earnings Season Trading Opportunities Part 1

07/21/2016 9:57 am EST


Michael Berger

President & Founder, Technical420.com

In the first part of three-part segment, Michael Berger, Associate Editor of MoneyShow.com highlights companies who have either reported earnings or are set to report earnings, which represent investing and trading opportunities.

For the most part, company earnings have been better-than-expected during the most recent quarter and yesterday, for the seventh day in a row the Dow Jones Industrial Average (DJI) closed at a record high.

This rally has come after a brief but sharp sell-off following the Brexit and amid a time when global tension could not be higher. In the near-term, we expect global stock market performance to be driven by company earnings, economic data, and central bank decisions.

Long or Short Ideas

One company we continue to view as a core long-term holding in any investment portfolio is Microsoft Corporation (MSFT). We became even more favorable after the company reported better-than-expected profit and revenue for the quarter.

CEO Satya Nadella said that Microsoft’s Cloud business is seeing significant customer momentum and is well-positioned for new opportunities in the year ahead. During the fourth quarter, revenue from Azure, a key Cloud product, increased by more than 100% when compared to the same period last year.

On the short side, Chipotle Mexican Grill (CMG) has bounced off of its 2016 lows and during the last month, the shares are up more than 5%. This rally comes as the company is set to report earnings after the market closes today.

From Goldman Sachs (GS) to Royal Bank of Canada (RY), analysts have become more favorable on CMG as the company has created a rewards program for the summer season in an effort to improve traffic trends.

Although Wall Street’s opinion seems to have changed, we remain cautious ahead of earnings and view the company as a short target. We expect the company to report profits and earnings that come in below expectations as costs continue to increase, while traffic takes longer than anticipated to recover.

Tiffany & Co. (TIF) will report earnings in late August and we expect to see the company’s earnings impacted by a stronger dollar and lower consumer demand, especially in Asia.

TIF operates in a very competitive industry where there has been an increase in the number of competitors offering a comparable product at a lower price. We expect to see weakness in many luxury retailers and view companies like TIF as short-targets before earnings.

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