This whole week I am going to pick two stocks each day. I will provide one bullish pick and one bearish one. Since there are two stocks, the analysis for each one will not be as complete, but will be sufficient for you to at least start your own research into the name.
Bull Pick – Google (GOOG)
How about that quarter? The company obviously caught a lot of bears off guard judging by the $50 rise in after hours, and the surge above $600 on Friday. Specifically, Google earned $7.64 per share, almost a dollar ahead of the consensus estimate. Analysts were practically tripping over themselves in praise and more importantly in raising their estimates and target prices. Most of the analysts note the acceleration in revenues, their strength in core search, and their ability to blow away numbers despite adding 1500 employees.
This report was crucial for many reasons. The stock had been stuck in the mud as its past two earnings reports were not the stellar ones that Wall Street had come to expect. As is the case with many growth stocks that fall out of favor, its price/earnings ratio contracted significantly. Well, guess what? It is about to go back up. I think this report will get all the institutions behind it as well as the momentum players that jumped ship.
$700
The next $100 for Google should be much easier than the last $100. Earnings estimates will soar after the dust settles and analysts have a full weekend to pore over the numbers. As I mentioned above, the momentum traders will start latching on and expand that p/e ratio. I don’t think it’s too late to get in for a strong gain, since this report will change the game for this stock.
Bear Pick – Apollo Group (APOL)
This stock is a disaster. It’s just that simple. Apollo Group, the for-profit education provider and owner of the popular school University of Phoenix said that new student enrollments could plunge by more than 40% this coming quarter which sent the stock reeling. Is it time to buy? No.
There is still a lot of regulatory overhang affecting the stock, which leaves the downside risk too high to try and bottom fish. The government is investigating claims made by these colleges that the degrees they give will lead to gainful employment.
Flunking Out
On top of providing poor results, the company withdrew its guidance for 2011. If there is one thing that Wall Street hates, it is uncertainty, and the cloud of doubt around this company is extraordinarily thick and menacing. Avoid the temptation to catch this falling knife because analysts probably aren’t done cutting their numbers, which will lead to further downdrafts in the price. In some senses, this is the exact opposite of Google’s situation. There is no need to be a hero here and pick a bottom.
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