Some big-name earnings reports will dominate the news this week: Apple Inc. (NASDAQ: AAPL), Wells Fargo & Company (NYSE: WFC) and Goldman Sachs Group, Inc. (NYSE: GS).
Many traders will attempt to anticipate an earnings move with short-term trades. However, I avoid these because even if you are dead on with your fundamental analysis, your position can still get killed if the Street wanted something different.
So let’s look at some longer-term trades for these big names.
Apple (AAPL)
Apple reports today after the close. It is the great American company, the only growth stock worth owning, and one that is double-dip recession proof. All you have to do is look at its latest sensation, the iPad. Demand for the iPad is off the charts. The gadget has even taken root in corporate America and is being rationed in China
Trade: Look at AAPL calls that expire in April 2011 or January 2012 LEAPS. However, I would wait until the dust settles after earnings before selecting a position.
Goldman Sachs (GS)
Goldman Sachs reports Tuesday before the open. GS is the great American investment bank, and based on the performance of Citigroup Inc. (NYSE: C) and JPMorgan Chase & Co. (NYSE: JPM), it will meet or beat earnings estimates while revenue growth will be muted.
I wonder about its forecast – as does the Street. Regardless of what the stock does when earnings are announced, anything other than a double-digit revenue forecast means profits will stall or decline next year. The company simply cannot cut costs or expand margins enough to grow profits as fast as revenues.
Trade: Look at longer-term GS put options.
Wells Fargo (WFC)
Wells Fargo is the great American retail bank. It is also a bank with serious exposure to mortgage losses on its balance sheet and is dealing with rising foreclosures as the housing market languishes on. And the stock is valued at a premium to the rest of the sector.
WFC announces before the market open Wednesday. It will be interesting to see how much the company plays with loan loss reserves to boost profits.
Trade: WFC has near cult stock status, so traders should wait to gauge the Street’s reaction to earnings and loan loss reserves before considering a trade. Personally, I’d go with WFC puts that expire in the seconds half of 2011.
