Much of this week’s market commentary is directed towards the financials, as banks report earnings and we get our first glimpse of their performance in the second quarter. Traders and investors seeking to play earnings catalysts outside the financial sector can look to technology stocks, with Yahoo! (Nasdaq: YHOO, 35.75) and Intel (Nasdaq: INTC, 31.56) both reporting today.
Company Focus
Yahoo is scheduled to report after the closing bell today, with analysts calling for $0.38 EPS on revenue of $1.08 B. YHOO shares down nearly 10% in 2014. CEO Marissa Mayer is under closer scrutiny than before, with investors looking for hard numbers to back up her Silicon Valley celebrity. The weekly at-the-money straddle (expiring this Friday) is implying a move of around $1.65, about 4.6%. YHOO shares have moved up on 2 of the past 4 earnings reports, and 4 of the past 8. While a reasonable argument could be made either way, I think there’s more room to the upside for YHOO given recent performance. While debt to equity ratio is a bit high for the industry, profit margins are impressive and Mayer has proven herself more than capable at the helm, despite the occasional misstep. The July weekly 36-37 Call spread for $0.37 could be an attractive play for those looking to directly play the earnings catalyst.
Solid Performer
Intel has been one of the strongest performers in 2014, with shares up over 20% year to date. The weekly straddle (this Friday’s expiration) is implying a move of around $0.95, or 3%, slightly above the historical average. Like Yahoo!, Intel has moved up 2 of the past 4 quarters, and 4 of the past 8. Consensus analyst estimates are $0.52 EPS on $13.69 billion in revenue. Key factors to watch will be guidance for the declining PC business, and profit margins for tablets.
Trade Ideas
INTC isn’t a huge mover on earnings (2.6% on average the past eight quarters), and given chart and strong technicals, I might consider buying back month calls. Should the stock sell of after today’s report, I think there is still plenty of room to upside over the next 31 days. The technicals are quite strong, and the stock is trading on 52-week highs, so I would only look to play Intel long or flat.
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