Last year, Q1, I wrote a series of articles over a five-week period where I picked individual stocks to buy before earnings, and invested my own money to track the progress. The series itself was fun, educational, rewarding, and has earned me countless emails over the last six months requesting that I begin the series once again. For this upcoming week, I saw a few opportunities that might be worth exploring; therefore I decided to write this article with four stocks that might be worth a buy before earnings.
My first pick for this upcoming week is Seagate Technology PLC (NASDAQ:STX) Technologies. Shares of the hard disk drive maker have been quite volatile over the last year despite currently trading near all-time highs. The company will report on Monday and is expected to post an EPS of $1.28. I believe there are many clues that the company might exceed its own revised guidance and issue higher guidance for this current quarter.
Back on Jan. 8 Seagate disclosed that it expects revenue of "at least" $3.6 billion, $100 million better than prior guidance. As you can see, I put "at least" in quotes because this implies that revenue could actually be better than forecasted. Last week we saw incredibly strong earnings from competitor Western Digital (WDC) and then Microsoft posted earnings that were better than consensus.
The good thing about Seagate ahead of earnings is that the stock is cheap, with a P/E ratio under 5.0, and the company has already increased its dividend by 19% and bought back 20.5 million shares in the quarter. To me, this indicates that the company is quite bullish, and I wouldn't be surprised to see the stock rally on Tuesday with expectations being so low and all indications suggesting a strong performance.
While investing in a company such as Amazon.com, Inc. (NASDAQ:AMZN) goes against everything I believe in, I also must acknowledge that it's presenting a strong likelihood for gains when it reports earnings on Tuesday. The stock rallied on Friday by 3.79% to reach new all-time highs as investors anticipate strong holiday sales. The company had previously guided for sales between $20.25 billion and $22.75 billion, but according to Cantor Fitzgerald, the market is expecting sales to be $22.30 billion, or a 30% gain year-over-year.
First, all data from similar companies such as eBay Inc (NASDAQ:EBAY) and even Overstock.com, Inc. (NASDAQ:OSTK) indicate that online holiday sales were strong. Second, data from retail checks done at the end of last year indicate that sales were strong. Lastly, the performance of the stock prior to earnings indicates that if the company beats that the stock should rise. Therefore, this is simply not a case of a stock that has already priced in earnings, this is a stock that is breaking out and could rally higher.
The value investor, such as myself, might say that it's a value trap because of its valuation. However, compared to eBay, Amazon is actually valued 40% cheaper, with a price/sales ratio of 2.10 compared to eBay's 5.08. Therefore, Amazon really isn't too expensive, and if revenue is over $22.3 billion, then expect a 3%-5% move higher.