Previously we talked about the long-term benefits of a buy-and-hold portf0lio strategy. But for those who can’t sit idly by, there are short-term trading opportunities within the long-term trend. Fueling the bullish move of the last several months has been strong economic data. The expectation is that economic growth will fuel profit growth, therefore justifying higher stock prices.
It’s a nice little theory that, uninterrupted by crisis, can push stocks to new heights. Problems arise when earnings data do not support those impressive stock gains. When companies release earnings, any black marks in the report can trigger a momentary collapse of the euphoria of bullish investors.
Last week we saw KB Home (NYSE:KBH) report results that weren’t enough to support what had been a huge run-up in its share price. The stock fell by more than 10% in the immediate aftermath of the news.
At the same time, there are stocks reporting results that meet expectations, but the gains after such reports have tended to be muted. Therein lies the opportunity for astute traders. Shorting stocks likely to disappoint is a strategy that can deliver huge short-term trading profits with limited downside.
I’m sticking with that approach until further notice. Here are three companies reporting this week:
Family Dollar Stores
Family Dollar (NYSE:FDO), which operates more than 7,000 discount stores, reports results for the quarter ending Feb. 29, 2012 on Wednesday before the market opens. Wall Street is looking for a profit of $1.13 per share in the period. That estimate has held steady over the last quarter. Family Dollar has met or exceeded expectations in three of the last four quarters. Shares are up 12% in the last 12 months. Analysts expect profits to grow by 15% from the current fiscal year ending Aug. 31, 2012 to the next. At current prices, shares trade for 16 times current-fiscal-year estimated earnings.
Mosaic (NYSE:MOS), a fertilizer company that produces potash and phosphate, reports results for the quarter ending Feb. 29, 2012 on Wednesday after the market closes. Wall Street has profits in the quarter pegged at 76 cents per share. That number is a steep drop from the $1.25 per share expectated 90 days ago. Mosaic has exceeded estimates in three of the last four quarters. Shares are down 25% in the last year. Analysts expect Mosaic to grow profits by 11% from the current fiscal year ending May 31, 2012 to the next. At current prices, shares trade for 12 times current fiscal year estimated earnings.
Finish Line (NASDAQ:FINL), the shoe retailer that operates more than 600 shoe and athletic stores, reports results for the quarter ending Feb. 29, 2012 on Thursday after the market closes. Wall Street expects Finish Line to earn 80 cents per share in the quarter. That estimate is a penny per share higher than 90 days prior.
Finish Line has matched estimates in three of the last four quarters. Shares are up 33% in the last year. Analysts expect Finish Line to grow profits by 6% in the current fiscal year ending Feb. 28, 2013. At current prices, shares trade for 15 times current fiscal year estimated earnings.
This article originally ran in Traders Reserve.