The second quarter earnings season is coming to a close, with nearly all S&P 500 companies reporting. To say this has been a blockbuster quarter may not go far enough in illustrating just how epic the performance was. Today, I’m sharing my favorite three stocks to buy in the wake of their reports.
According to FactSet, of the 91% of S&P 500 constituents who have released their numbers, 87% scored revenues above estimates. This is the highest percentage besting sales forecasts since FactSet began tracking the metric in 2008. What’s more, the magnitude of the revenue surprise is also the highest percentage (+4.9%) we’ve seen since 2008.
Perhaps the most important metric to me is a price chart that demands our attention. Some companies reported robust earnings, but their share prices had already priced it in. Others scored solid up gaps as investors cheered the news.
It is the latter group that I find most compelling. Here are three to consider.
Let’s take a closer look at each chart and map out an options trade to profit.
Stocks to Buy: Dicks Sporting Goods (DKS)
Dicks Sporting Goods destroyed its earnings numbers this quarter. Even though its share price was up more than 100% on the year heading into the release, it still gapped up 13% on Wednesday to a new record high. Revenue came in at $3.27 billion versus $2.85 billion expected. That translated into earning per share of $5.08 adjusted versus expectations for $2.80.
And the company isn’t sitting idle with its growing cash hoard. They announced a special dividend of $5.50 per share and a doubling of its share buyback program. The price chart is as pristine as you’d expect. Volume exploded this week as buyers aggressively snatched up shares to celebrate the earnings bonanza. In the short run, DKS is extended, but I don’t expect a sharp drop given the fundamental tailwinds.
Bull put spreads make sense here.
The Trade: Sell the October $115/$110 bull put for 50 cents.
Salesforce.com (CRM)
The recovery in Salesforce.com shares is nearly complete. After spending the entirety of the year off its highs, the cloud giant finally reported good enough earnings to pull prices within striking distance of last year’s peak. At $270, CRM stock is only 5% away from it.
With Thursday’s gap, we saw a sharp increase in trend momentum. The uptick in bulls’ aggression makes the next set up a must-buy. Ideally, CRM will pull back from here and fill the gap to offer a lower-risk entry. Alternatively, it could tread sideways to build a high base pattern before breaking out. In either case, Salesforce.com belongs on your radar.
If you’re impatient and want some exposure now, I’d at least use put spreads so you can profit even if the stock chops around for a spell to digest the overbought pressures.
The Trade: Sell the October $250/$240 bull put spread for $1.50.
Stocks to Buy: Penn National Gaming (PENN)
Earnings reports are the one event that demand investors pay attention. They can single-handedly topple uptrends or reverse downtrends. In the case of Penn National Gaming, we’re looking at a case of the latter. As the last of our stocks to buy, PENN is offering a rare triple bottom pattern that just triggered this week with a rise above major resistance and the 50-day moving average.
Notably, the trend’s low came during the sharp bullish reversal candle after this month’s earnings release. Apparently, PENN stock had fallen too far over the past five months, and it took a better-than-expected earnings announcement to make investors wake up and realize the bargain they’d created.
Prices are up six days in a row, and I find the lack of selling impressive. The volume increase confirms institutions are entering the fray, and the new trend should have legs.
The Trade: Sell the October $65/$60 bull put spread for 50 cents.
On the date of publication, Tyler Craig was long DKS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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