When it comes to trading earnings, I like the more-obscure names, especially for bullish trades. They’re less crowded. I avoid crowded trades, or I play them on the put side.
One such obscure stock is Trimble Navigation (TRMB), which is set to release earnings on Tuesday, April 28.
The company provides advanced positioning products (as in GPS, GIS and related items) for commercial and government users.
Trimble has an enviable earnings track record, having met or beaten every quarterly estimate for nearly six years. Expectations for Q1 have been scaled back considerably. Analysts are looking for a 35% drop in profits compared to an average gain of 21% during the past four quarters.
Sentiment toward TRMB is likewise reserved. The put/call ratio is coming off an annual high, meaning that extreme pessimism is unwinding into some buying power.
Keep in mind that optimistic sentiment represents higher expectations and, thus, can create some vulnerability if those expectations aren’t met. Conversely, pessimism reflects lower expectations that often lead to upside earnings surprises.
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Analysts are less than enthused, as just three of 11 rate the company a “buy.” That leaves more-than-ample room for future upgrades. Short interest is also high, which means the stock could benefit from a short squeeze. (That’s when short sellers are forced to buy back their shares to avoid heavy losses, thereby adding buying pressure to the stock price.)
And TRMB’s chart does not mesh with the sentiment.
The stock has gained more than 50% off its March low and is now trading at a three-month high. What’s more, the share price is sitting well above all daily moving averages. In fact, the next site of chart resistance is around the $23-$24 region, which is about 25% above yesterday’s close.
The bottom line is that TRMB is surrounded by low expectations that are not consistent with its technicals. That’s a bullish combination in our book, which is why now is the perfect time to put on a bullish trade in TRMB.
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Jon Lewis is the co-editor of The Winning Edge trading service designed to help you make options profits around corporate earnings and other market events. For more information about Jon, read his bio here.
