We’ve passed the peak of earnings season and are now on the descent. A few stragglers remain, but most industry titans have released their first-quarter numbers. Despite reporting impressive results, the market response in nearly all cases was muted. And as is always the case, there were a few companies that completely whiffed. Today’s gallery will reveal three of them and why they’re prime stocks to sell.
Two of the three were considered beneficiaries of the global pandemic and saw their share prices balloon over the past year. When multiples expand, and prices become rich, earnings reports have a greater chance of disappointment. This, I suspect, was the case for them. The stocks had been bid to perfection, and the mere mention that growth may not remain as stellar as expected brought swift judgment.
It doesn’t mean these companies won’t recover, but it does mean they’re worth steering clear of until they recapture the magic. With that, here are three stocks to sell after earnings duds.
Let’s take a closer look at each chart and identify which options strategy is catching my eye.
Stocks to Sell: Teladoc Health (TDOC)
The appeal of Teladoc Health in a world where no one wants to leave the safety of their home is obvious. Its share price was already trending higher ahead of 2020, but the novel coronavirus sent TDOC into orbit.
As is often the case in episodes of euphoria, traders’ enthusiasm got the better of them, and Teladoc shares boomed beyond what the fundamentals would allow.
This year, the comeuppance finally arrived. The past two earnings reports resulted in substantial down gaps, and TDOC is now nearly 50% off its highs. Yet, it’s still way above where it was last year at this time, so there’s more room to fall if sellers want to press their advantage. With this week’s decline, TDOC is now testing major support near $167. A breach of this zone would signal more pain to come.
The Trade: Buy the July $165/$150 bear put for $5.25 or better.
You’re risking $5.25 to potentially capture $9.75 if TDOC can fall below $150 by expiration.
Traders went bananas for Twitter in February following an impressive earnings report. Unfortunately, the bluebird couldn’t repeat its performance this quarter. The stock is getting smashed -14% today after releasing lackluster numbers. The company missed on user growth, with monetizable daily active users coming in at 199 million versus the 200 million expected. Forward guidance was also seen as underwhelming.
On the price front, this morning’s gap is landing TWTR stock into no-man’s land. A few previous resistance zones near $55 could bring buyers in, but barring that, we have a straight shot lower to the 200-day moving average, which sits near $50. The following trade will score big if Twitter does indeed revisit the 200-day.
The Trade: Buy the June $55/$50 bear put spread for $1.62 or better.
Stocks to Sell: Pinterest (PINS)
Pinterest is the final of our stocks to sell. Like Teladoc Health, PINS cashed in on the pandemic with a big boost in earnings and sales. The stock skyrocketed from $10 to $90 in less than a single year. It’s epic, to be sure, but leaves the stock vulnerable to downside shocks if the expected growth experiences any missteps.
This week’s earnings announcement is one such example. Whatever the numbers were, they apparently weren’t good enough for the Street. With the downdraft, PINS stock is now testing a major support zone. If the floor holds, then you can ignore my bearish-leaning commentary. But if it doesn’t, then further downside is likely.
We’ve seen many probes into the $65 support zone, increasing its significance and the importance of an eventual break of this level. Prepare yourself accordingly. I like buying put spreads if the floor gives way.
The Trade: Buy the June $65/$60 bear put for $1.90.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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