Earnings Season Trading Opportunities Part 2

07/26/2016 9:14 am EST


Michael Berger

President & Founder, Technical420.com

In the second part of three-part segment, Michael Berger, Associate Editor of MoneyShow.com highlights two stocks that he believes are attractive trading opportunities before they report second-quarter earnings.

Oil prices continue to move lower while the market trades near its all-time highs. 

For the most part, company earnings have been better-than-expected this quarter, however, we do not expect this to continue as energy and technology companies prepare to report their results.

The nature of the markets right now has made it challenging for investors to find value. By looking at comparable quarterly results, recent performance, and market trades, we were able to identify a few opportunities for traders.

BP has the Energy Sector Off to a Rough Start

BP Plc (BP) was the first major integrated oil and gas company to report financial results and its profit numbers were 45% lower than the amount reported during the same period last year. The company’s results were impacted by weak refining margins and its earnings signal trouble for other major energy producers.

During the last month, the price of Brent crude has fallen more than 14% from its monthly highs and we expect to see further weakness in the near-term. One energy stock that we would buy on weakness is Newfield Exploration Co. (NFX).

NFX fell more than 4% during the last week and the shares are up more than 31% this year. We are favorable on Newfield due to its strong asset base, improving production profiles in the Anadarko Basin, cleaned up and hedged balance sheet, and improved valuation. NFX reports earnings on August 2nd and we expect to see the company beat expectations.

Apple to Set the Trend for Tech

After the market closes today, Apple Inc. (AAPL) will report earnings and the company’s numbers will be closely analyzed. The market is not expecting a good quarter from the smartphone giant and Wall Street expects revenue to be 15% below the number reported in the same period last year.

If Apple’s quarterly results meet expectations and the company issues guidance that is also in-line with expectations, the shares could move higher since market sentiment is very poor. An earnings beat by Apple would surprise the market and serve as a catalyst for the entire market, especially technology stocks.

That being said, if Apple’s results come in below expectations, the shares will sell-off and AAPL will test its 2016 lows. We expect Apple to report results that come in below expectations as a result of waning smartphone sales, weak smartwatch sales, and lower-than-anticipated guidance.

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