by Traders Reserve | October 31, 2012 8:00 am
Good traders goes where others fear. That is to say, when a company reports earnings, most traders head to the sidelines immediately before and immediately after.
They want to avoid the volatility.
But good traders thrive on the volatility. That is where the most money is to be made. With a reasoned approach to determine earnings against the number and the directional movement of trading thereafter, the earnings traders can pad their portfolios with literally thousands of dollars per month.
With a minimal amount of capital allocated to trading options of companies reporting earnings results — as little as $300 per trade — big gains can be had in less than 24 hours of trading.
The best way to do this is to focus on my own earnings trades. Each week, I look for one trade to make that is most likely to double in value or more.
When I look for money-doubling trades, I take my system and apply it to companies that are set to report quarterly operating results. I then look at the behavioral side of the equation to determine the market’s likely reaction.
The result is a reasoned analysis of what is likely to transpire before the event takes place. In that way traders can use that information to exploit inefficiencies in the market for big profits like we have seen in my weekly earnings trades.
Here are 3 Money-Doubling Trades for This Week (Please keep in mind that with the effects of Hurricane Sandy the NYSE and other markets may be closed or delayed during the remainder of the week):
The navigation device company reports results for the quarter ending Sept. 30, 2012 on Wednesday before the market opens. Wall Street expects Garmin (NASDAQ:GRMN) to report a profit of 61 cents per share in the period. That estimate is 4 cents per share lower than where the number stood 90 days ago. Shares of Garmin have appreciated by 12% in the last year of trading. Analysts expect profit growth to be flat from the current year to the next. At current prices shares trade for 13.5 times current year estimated earnings.
Given the evolution of the smart phone, it is hard to imagine Garmin still having a business. That fact alone should have the stock trading for a paltry valuation instead of its now very healthy valuation. Flat profit growth is not good enough to be trading for 13.5 times current year estimated earnings. The company did put in an impressive beat-the-number performance last quarter. I doubt a repeat performance. Garmin is a put buy in advance of its earnings report on Wednesday.
The credit card behemoth reports results for the quarter ending Sept. 30, 2012 on Wednesday after the market closes. Wall Street expects the company to make $1.50 per share in the quarter. That number is a penny per share higher than 90 days prior. Visa (NYSE:V) has exceeded estimates in each of the last four quarters. Shares of Visa are up nearly 50% in the last 12 months of trading. Analysts expect profits at the company to grow by 16% in the current fiscal year ending Sept. 30, 2013. At current prices, shares trade for 19 times current fiscal year estimated earnings.
If there is an industry that deserves a premium multiple it is the cash cow credit card company. Both Visa and MasterCard (NYSE:MA) are minting money. Consumer balance sheets are significantly better off today than at the height of the financial crisis. With the support of the Federal Reserve, spending is likely to stay at heightened levels for the foreseeable future. I expect nothing but positivity from Visa when they report results on Wednesday. The stock is likely to trade higher as a result. Call options on Visa should do quite well.
The coffee shop king reports results for the quarter ending Sept. 30, 2012 on Thursday after the market closes. Wall Street expects Starbucks (NASDAQ:SBUX) to make 45 cents per share in the quarter. That estimate is a penny per share lower than where the number stood 90 days prior. Starbucks missed estimates in the last period, but beat the number three straight quarters before that miss. Shares of Starbucks have gained 9% in the last 12 months. Analysts expect the company to grow profits by 20% in the current fiscal year ending Sept. 30, 2013. At current prices, shares trade for 21 times current fiscal year estimated earnings.
Thus far during earnings season the consumer has ruled the day. Last week we learned that GDP was stronger than expected thanks to increased spending by consumers. The trend should bode well for Starbucks in the short run, but is it sustainable over the long term?
There are serious cracks in the wall that should not be ignored. Yes, Starbucks is expected to grow profits by an impressive rate, but shares are priced right at that expected growth rate. What happens if something goes wrong? These are things to worry about tomorrow. For now, Dunkin Donuts (NASDAQ:DNKN) reported results last week that showed strong demand for its coffee and donut products. I think we can expect the same from Starbucks. I’d look at call options before they report on Thursday.
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