As we continue our experimentation with stock and options as part of the 2 Bulls in a China Shop podcast, we are continuously drawn to earnings. And we get giddy at the thought of a bounce-back stock. If the right stock can be identified, the chances for large profits are much better. One thing that we’ve been noticing, however, is that sometimes companies report great earnings yet still the price drops. Whether this is due to profit-taking or unrealistic expectations we don’t always know. But, it seems likely there is a great chance to make money on the potential “bounce” once people digest the reports. We’ve seen this happen with COST and LOGI recently and what follows below are our 3 candidates to repeat this pattern next week.
InterDigital, Inc. leads off after posting a mixed quarterly report. Earnings of -$0.04 per share missed the consensus of -$0.03, but revenue of $90.79 million beat the estimate of $88.11 million. Partially what hurts the stock is likely due to the company not issuing earnings or revenue guidance for next quarter. On the positive side, B. Riley increased their price target to $123, nearly double the closing price of $64.15 on Friday. Low volume in the stock makes it more of a risky play, but the potential rewards make it intriguing. March 19, $65 calls traded Friday around $2.20, so it’s cheap enough for a gamble, but low volume will make it that much harder to close the position.
Emergent BioSolutions is second on our list, as it comes with warts. Namely, Chardan Capital downgraded the stock to Neutral with a price target of $112. The stock closed on Friday at $103.04 after reporting earnings of $3.67 and revenue of $583 million, beating the estimates of $3.19 and $563.6 million respectively. March 19 $110 calls were trading around $3.5 and seem to be worth taking a flyer on. There is a limit on the volume of these contracts, so expect to see a large spread in the bid/ask prices.
Universal Display Corp. in our opinion is the best candidate to rebound and our favorite bounce-back stock. On Thursday, the company posted quarterly earnings of $1.13 per share, nearly doubling the consensus of $0.64 per share. This represents over a 100% increase from one year ago. Revenue also increased almost 40% from a year ago at $141.54 million, again beating the estimate of $109.32 million. The stock was trading around $240 prior to reporting and closed the week at $224.80 on Friday. Options expiring March 19 are the best bet if we base it on volume and the $230 calls trading around $7.40 on Friday.