We’re looking beyond S&P 500 companies to find a suitable earnings trade for next week. And we found one in Joy Global Inc. (NASDAQ: JOYG), maker of underground and surface mining machinery.
The company reports Wednesday, Sept. 1, before the open. Analysts expect a profit of $1.02 per share, a drop of 16% from a year ago. The whisper number is four cents higher. Normally a higher whisper is cause for concern. But given that JOYG has basically blown out recent earnings reports (beaten the consensus estimate by an average of 36% over the past five quarters), we don’t see that as a problem.
Not only has JOYG beaten recent estimates, the stock has performed well after each report. In the two weeks following the past four reports, the stock has gained ground three times by an average of more than 15% (the other was a drop of 5%). That kind of move should create triple-digit returns on an option trade.
On the chart, the stock has dropped sharply, giving up 9% in the past week. But the shares appeared to find some support at their 200-day moving average on Wednesday. That support should provide a solid foundation for a post-earnings surge.
Sentiment toward JOYG is mixed to pessimistic. Options players have been piling on the puts, causing the put/call ratio to surge to near an annual high. Analysts are somewhat more bullish, with 12 of 19 rating the stock a “buy.” Probably a wash, so we’ll let JOYG’s recent earnings success and chart support do the talking for this trade.
A September option (expires on Sept. 19) should allow plenty of time for the post-earnings move to play out. Go with the JOYG Sept 55 Call, which should double if the stock rises to the $60 level within the next three weeks.
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