Betting On Earnings Events

While it's not earnings season yet, a few large companies have reported earnings recently, and created quite some excitement already. It started with BestBuy BBY reported better than expected earnings and strong guidance on Sep. 14, and its stock gapped up 7.5% the next day. Next was Research in Motion RIMM, which reported good earnings, and the stock got a pop. However, RIMM's strength in smartphone is continually challenged by Apple's APPL iPhone and Google's GOOG Android phones, and the ranting by its CEO didn't help either, causing the stock to sag again. Nonetheless, after Oracle reported strong earnings after market on Thurs , Sep. 16, Oracle advanced 8% on Friday. It seemed then that tech could do no wrong, and got an all-clear signal. But on Sep 21, Adobe ADBE seem to have spoiled the momentum, as it sank more than 10% in after-hours trade, after reporting record earnings but disappoint outlook. Earnings event has always been a volatile event for stock price. When a reporting company surprises investor, either on the upside, or on the downside, 5%-10% move is frequently observed. This kind of moves can also happen at earnings events when a stock is perfectly priced, or when investors get too pessimistic, but earnings expectation is met, or even slightly disappoints. With the recent rise in stocks in September and how Adobe's stock reacted after its reporting, we believe the market expectation is quite high for upcoming earnings report, and any disappointment will have devastating effect on short-term stock price. Therefore, for the daring souls, now is a time to look at the upcoming stocks that will report earnings soon. Looking at the list of stocks reporting earnings soon, we think Red Hat RHT reporting on Sep 22, Nike NKE reporting on Sep 23, and TIBCO TIBX reporting on Sep 23, are particularly vulnerable if they don't get to surprise investors on the upside, while KB Home KBH reporting on Sep 24, may get a pop if it follows through or surprises on expectations, similar to what Lennar LEN provided when it reported earnings on Sep 20. Daniel Ho is the founder of 10xreturn.com, a financial portal providing financial information and market statistics for investment professionals.