Earnings can be the best period of opportunity in the market, as they often set the trend for the following three months. However, it can also be a trap. Therefore, I am looking at three stocks that might be presenting opportunity following earnings on Friday
The Top Performer on Friday May Be Expensive…. But is Still a “Buy”
NIKE, Inc. (NYSE:NKE)’s near 12% rise on Friday was a result of the perfect combination of low expectations and solid fundamental performance. The company posted top-line growth of 9% and an EPS of $0.73, which was $0.05 better than expectations. Furthermore, the company announced very encouraging guidance, highlighted a launch of new brands, and saw very impressive margin growth.
Late Thursday night and throughout Friday morning I spent countless hours breaking down the earnings of NIKE, Inc. (NYSE:NKE), trying to find weakness in its quarter. However, I came to realize that Nike simply posted an incredible quarter. Of course I was discouraged by the 9% fall in Chinese revenue. However, the company’s 18% growth in North America is simply incredible considering the size of its business. With that being said, the stock’s P/E ratio of 27 may look expensive (twice as much as the S&P 500). However, you must keep in mind, this is a company that is growing three times faster than our economy, and in a large global business. Therefore, I would buy even at these high levels, because although the stock is more expensive than I typically seek, I believe its fundamental performance is worthy of the valuation.
A Good Turnaround Story Evident With Earnings
After years of disappointment, bulls of Micron Technology, Inc. (NASDAQ:MU) are getting the last laugh. Micron has rallied 60% during the last three months, and 12% on Friday after announcing earnings. However, the quarter was mixed, with revenue barely edging expectations and the bottom line missing the consensus thanks to a $182 million loss in write-downs.
The upside in shares of Micron Technology, Inc. (NASDAQ:MU) occurred because its 24% quarter-over-quarter growth in DRAM sales and its 38% increase in volume calmed worried that soft PC demand would impact the company’s earnings. The company also saw volume increase for NAND flash sales, and a 580 basis point increase over the previous quarter. These numbers are proof that the company’s operations are becoming more efficient and that demand is increasing. And after a horrible year in 2012, profitability could be a part of the company’s immediate future. Therefore, I am buying Micron, and I believe that this quarter solidified the recent rumors of improvement.
Efficiency Could Lead to Gains Despite Current Loss
After a good start to 2013, shares of New York & Company, Inc. (NYSE:NWY) fell 8% on Friday after the company beat expectations and issued lower guidance than The Street had expected. Looking at its quarter, the company’s performance was very strong, but with weak February sales, the company expects growth in the low single digits.
New York & Company is a small-cap stock, with a market cap of $260 million. However, it’s a fairly large company with sales of almost $1 billion. NWY’s price/sales ratio of 0.30 compares favorably to other women’s specialty retailers such as Ann or Limited Brands. Basically, the company doesn’t need top-line growth, it needs efficiency, and this is a company that has been improving its bottom line.
The stock is currently trading with a forward P/E ratio of 19.05, meaning it’s expected to post its first year of profitability in four years. Therefore, I think New York & Company could be a nice investment on the weakness, possibly becoming a stock such as Christopher & Banks as it fundamentally improves.
Conclusion
When a stock trades drastically lower or pops significantly higher after earnings you must ask yourself a question “was the news worth the movement?” Far too often we make assumptions based on performance, but the best investors are able to use movement as an opportunity to capitalize on value. Therefore, as I’ve discussed often, when it comes to earnings, read the report first then assess the performance second, and you may find a good opportunity to invest.
The article Three Attractive Stocks Following Earnings on Friday originally appeared on Fool.com and is written by Brian Nichols.
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