In these tense weeks on Wall Street, where on one hand we have the indexes in all-time highs, and on the other a series of fundamental problems (Trade War with no-solution yet, global economic slowdown, possible recession in 2020, negative interest rates, investment of the yield curve, etc.), an attractive investment to refine the short-term side of your portfolio is to observe stocks with good recent earning reports positive ratings from the analysts but, for "strange" reasons (of course, market manipulation from smart-money), their shares can't get a trend, keeping up the expectation to go up.
As I commented earlier, buy and hold a stock before its earnings report is a bet: can be highly profitable or devastating for your portfolio. You decide the risk you face. Personally, I always prefer to wait for the report, to compare their numbers with the estimates in eps, sales, and guidance, review the conference call for some additional data and see the analyst's actions the next day, which usually increases or decrease their weighting and price target. I search for the stocks that beat estimates but didn't react well. I wait for its behavior in the next days, in which high-volume transactions and implied volatility move, ideal factors for trading, are guaranteed. It is not an infallible method (there is none in stock trading), but for one who handles low-risk management, it is the most advisable.
Two stocks that recently reported earnings, are taking my attention, due to its price action: the semiconductor design company Ambarella AMBA, and the retail stores Ross Stores ROST.
1. Ambarella Inc. AMBA, $55.205
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Ambarella 2020 Q3 ER highlights, was better than forecasts: EPS $0.32 beats $0.20 estimate, above $0.21 a year ago. Sales $67.9M beat $65.03 estimate, an 18.6% increase year over year. Guidance Q4 sees sales $55-59M, inline. The company "envisions automotive and security to be down sequentially while other revenues to be flat to slightly up sequentially. It predicts consumer electronics revenues to be persistently soft, declining as a percentage of revenues over the next two to three years". For sure, a Trade War resolution could send this stock again to $80 levels, as in 2017.
The stock's initial reaction in extended hours was a 7% spike to $63.5 highs. After Conference Call, from CEO and founder Fermi Wang, shares decrease slightly to $54 when closes the next regular session on Tuesday. Also, volatility closes in 34% from 56% before the earnings report. Next day, analyst publishes its ratings and price target, and, as you see, with no upgrades but a generally positive view for AMBA, as all of them raised its price target
- Morgan Stanley: maintains Overweight rating. Price Target. $60 > $61
- Roth Capital: maintains Neutral rating. Price target: $55 > $60
- Craig-Hallum: Reiterates Buy rating. Price target: $62 > $70
- Deutsche Bank: maintains Overweight rating. Price Target. $50 > $55
- Stifel Nicolaus: maintains Hold rating. Price target: $54 > $55
- Bank of America: maintains Underperforming rating. Price Target. $50 > $53
Technicals:
With shares ranging since October, Ambarella needs more signals for a bullish bias, as overcome the Ichimoku cloud, its SMA50 and 100 averages and the November month pivot at $55.31. Stochastic at lows is a good signal for a buy-the-dip trade. I presume a slow recovery, ideal for speculation, could begin next week if the technicals mentioned above are achieved.
2. Ross Stores ROST, $ 116.33
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Fundamentals:
Session post-earnings open at lows $109 but thanks volume increasing during the day, shares finally close at $111 and next day a slow but firmly bullish rally was seen, sending the stock to $116.33 at the close.
Ross Stores 2020 Q3 ER was, as usual, better than forecasts, as the company always gives low guidance: EPS $1.03 beats $0.97 estimate, above $0.91 a year ago. Sales $3.85B beat $3.77B estimate. Also, show increases in comparable-stores sales (5%) and operating margin (12.4%), both above-plan, and expecting a nice $1.25 for the next quarter, as told its CEO Barbara Rentler in the Conference Call. Good numbers, confirm with the many analyst rating:
- Wells Fargo: maintains Outperform rating. Price Target. $116 > $125
- Wedbush: maintains a Neutral rating. Price target: $110 > $115
- Nomura: Reiterates Neutral rating. Price target: $110 > $113
- Deutsche Bank: maintains Buy rating. Price Target. $118 > $120
- Morgan Stanley: maintains an Overweight rating. Price target: $104 > $113
- Bernstein: maintains Outperform rating. Price Target. $118 > $125
Technicals:
ROST is moving in a powerful bullish channel since March, above main moving averages and Ichimoku cloud. With the current ER is likely this rally will continue in the mid-term. As it is now trading at all-time highs, a good idea is to verify when it reaches its next resistance is in the upper line of the channel, at $118.40. With volatility at year lows (20%) a good opportunity is seen here for trade calls ITM or bullish spreads in this, now oversold, stock when a little pullback from highs occurs, likely next week.
Good Trading!
@BravoTrader
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