Holding a stock through earnings can be highly profitable. It can also be calamitous. At times though, a stock report’s aftermath can offer investors a stronger risk-adjusted purchase when the news and reaction align in just the right way. And right now, Tesla Motors (NASDAQ:TSLA), PayPal (NASDAQ:PYPL) and Chipotle (NYSE:CMG) are stocks to buy following earnings after cheers from Wall Street.
We’d like to believe otherwise, but how a stock reacts to earnings is a crapshoot at best. For one, there’s broader market sentiment and perception to consider. And of course earnings on an absolute basis or results versus consensus and whisper views, as well as guidance from the company are factors every stock faces.
All told, there’s a lot going on with a company’s earnings report. What’s more, knowing which of these items or combined influences will hold the most weight for any given quarter is an elusive and losing battle when it comes to which stocks to buy in front of an earnings confessional. But don’t despair.
I’m not trying to frighten investors during earnings season. It’s actually a great period to watch for companies of interest, to see if those stocks deliver on their promises, and to see how Wall Street reacts to the report. And if the aftermath looks like TSLA, PYPL or CMG, investors have a short list of stocks to buy with greater confidence.
Stocks to Buy: Tesla (TSLA)
Tesla is the first of our stocks to buy following earnings. The EV manufacturer and battle ground stock shocked Wall Street this week with a surprise profit that toppled analyst views and announced solid delivery numbers for its third quarter. Adding fuel to TSLA stock’s 18% price spike, the company updated investors with positive news that its new factory in Shanghai is ahead of schedule.
Technically, TSLA stock is back on the radar for buying as the post-earnings reaction took shares out of a ten-month long correction and into the right side of a new bullish basing pattern above the 50% Fibonacci level. With shares still off 11% on the year and monthly stochastics supporting the price action, Tesla is a stock to buy.
TSLA Stock Strategy: Put TSLA stock on the radar for purchase if a simple pullback over the next several sessions takes hold and a new higher low price pivot within this stock’s uptrend is confirmed.
PayPal is our next stock to buy. The payment processing champion offered investors better-than-forecast results this week when it reported on Wednesday. The confessional’s highlights include the company’s easy profit beat of 9 cents on earnings of 61 cents per share of PYPL stock, 19% year-over-year revenue growth, solid account growth and positive margin expansion.
Technically speaking, PYPL stock’s bullish reaction to the report has formed a weekly chart hammer candlestick. With the reversal finding support in-between a 50% Fibonacci level tied to 2018’s cycle low and its prior base-on-base resistance and stochastics signaling a bullish oversold crossover, PayPal shares are in position for purchase.
PYPL Stock Strategy: Buy PYPL next week on price confirmation of the hammer low. If need-be, use a blended stop-loss below $99 to exit and look to take partial profits following a breakout to new highs.
Chipotle is the last of our stocks to buy following earnings. The fast fresh restaurateur crushed Street profit views and topped off the report with solid same-store-sales growth of 11% compared to forecasts of 9.3%. The results however took a backseat to Chipotle’s announcement the company is investing further in its business by introducing drive-thru service. With investors apparently focused on CMG stock’s added costs for its latest initiative, shares took it on the chin by a bit more than 5%.
But, technically, investors should be ready to thank Wall Street’s nearsighted behavior. The far-from-damaging reaction still finds shares of this stock to buy inside a flat, two-month base that has formed slightly above its former all-time-high from 2016.
CMG Stock Strategy: Put CMG stock on the radar for purchase on a pattern breakout through $857.90 with a stop-loss of 7%. Alternatively, if a daily chart reversal pattern above $744 can develop in the coming days, buying Chipotle shares on weakness makes sense. And it goes without saying a stop-loss marginally below the confirmed low is a smart risk-adjusted strategy for buying value without fear of indigestion.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.