Be cautious ahead of earnings for BBY, HD, TJX, CPB

November 15, 2013, 10:40 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

A few very important earnings releases are coming over the next few days.  We have conducted an analysis of these companies in order to provide investors with a summarized earnings analysis (both past and present), but also, and more importantly, a price-based observation that might be better suited for investors who are anticipating price action after earnings are released.

Of course, we already know that stocks sometimes do the exact opposite of what we might expect after earnings.  A stock might fall after it beats estimates, or increase after a miss, so although an evaluation of earnings data is clearly important, a close look at the recent decisions of smart money is as well.

This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock’s move after earnings are released.

The following Companies report earnings on November 19.

Best Buy Co., Inc. (NYSE:BBY) is scheduled to report earnings on Tuesday, November 19 before the market open.  Analysts’ estimates are for the company to earn $0.10 per share, which would be $0.06 better than the $0.04 reported in the same quarter a year ago.  Best Buy’s Renew Blue plan could eventually produce $1 billion of cost savings, which would surpass its current goal of $725 million.  The gap between BBY and AMZN on TVs narrowed to 2%, the smallest gap in over a year, which means Best Buy is getting closer to matching AMZN on price and decreasing the amount of share loss, even though it may result in a lower gross margin.   Shares of Best Buy are up a staggering 289% YTD.  Should investors buy, sell or hold ahead of earnings?

The stock is up big this year and smart money will be watching the price.  BBY is getting closer to a test of long-term resistance (not there yet).  According to rule, we are sellers at resistance, and as long as the stock remains below resistance, we expect lower levels and a test of support. Based on the real-time trading report published by Stock Traders Daily, BBY is a sell/short at resistance, with risk controls in place if resistance breaks higher. 

Campbell Soup Company (NYSE:CPB) is expected to report $0.87 per share when the company reports its quarterly earnings on Tuesday, November 19 before the market open.  If Campbell Soup can match analysts’ estimates, it would be a penny less than the same quarter a year ago.  Campbell Soup and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) announced an agreement to bring together Campbell's, the number one soup brand in the United States, and Keurig, the number one coffee brewer brand in the United States by dollar sales. Campbell's Fresh-Brewed Soup K-Cup packs will be offered at the touch of a button in Keurig brewers in 2014.  CPB is up 22% YTD, but the stock is down 11% from the yearly highs.  Is the pullback a buying opportunity? 

Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report for CPB, the stock has been drifting closer to long-term support, but isn’t there yet. If the stock continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support and caution investors not to chase the stock ahead of earnings. 

The Home Depot, Inc. (NYSE:HD) is scheduled to report earnings on Tuesday, November 19 before the market open.  Analyst estimates are for the company to earn $0.89 per share, which would be a 20% increase from the same quarter a year ago.  Rising rates could be headwinds to the business in the future, even though in the past rising rates did not impact Home Depots business. The stock is up 28% YTD, and up about 3% in the last week.  Is the stock a buy, sell or hold ahead of earnings?

Shares of HD are getting closer to a test of long-term resistance.  Even if HD is able to beat estimates on Tuesday, it does not mean the stock will continue to rise.  If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support.  That would make HD a sell/short at resistance, with risk controls in place if resistance breaks higher.  We caution investors not to chase the stock into earnings. 

The TJX Companies, Inc. (NYSE:TJX) is expected to earn $0.74 per share when the company reports its Q3 numbers on Tuesday, November 19 before the bell.  If TJX can match the analysts’ estimates, it would be an increase of 19% from the same quarter a year ago.  Just before TJX's investor day in MA, management raised 3Q13 sales/earnings guidance, even amidst widespread weakness across retail, as strong traffic at all stores continues to drive meaningful market share gains. Longer-term, the company significantly increased its store growth targets and now plans to grow the chain about 60% with current concepts in current markets.  The stock is up 50% YTD and trading near the 52-week highs.  Does the stock still have upside from current levels?

Based on the Stock Traders Daily real-time trading report for TJX, the stock has just broken above long-term resistance, which is now converted support. So far, converted support is holding, and as long as that remains true, the rules that govern our strategies tell us to expect higher levels.  We are buyers at that converted support level, but converted support also acts as our risk control. We see higher levels as long as converted support (former resistance) stays in place.

Navigating earnings can be tricky, sometimes investor’s earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.

Stock Traders Daily has been providing comprehensive market analysis, and correlated trading strategies since January 2000, which was the virtual peak of the Internet Bubble.  Our objective is to provide strategies capable of making money in any market environment, and we have been doing that since inception.

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