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Which Stocks Look Ready to Pop and Drop with Earnings This Week?

the Staff

Stocks tend to be most volatile around earnings season, when a good or bad report can make or break it. However, a good or even great earnings report doesn't necessarily translate into a huge pop for a stock.

During earnings season, publishes a comprehensive 25- to 40-page Earnings Preview report for the week ahead each Friday.

Over the past year, used the data it has collected to correctly predict investor reactions for approximately two-third of the stocks it's previewed.

In its latest earnings preview, looks at several popular stocks, including VMware (VMW), Broadcom (BRCM), (AMZN), Skywork Solutions (SWKS), Qualcomm (QCOM), Fusion-io (FIO), Facebook (FB), Potash (POT), Mastercard (MA), and Enterprise Products Partners (EPD).

Here is just a tiny sample of what wrote about Qualcomm:

Qualcomm has beaten analyst EPS estimates seven of the past eight quarters, missing the consensus once. Over that period, the stock has risen the next session six of eight quarters. Seasonally, the stock has risen twice in the last four years. ...

Last quarter, the company said its profit for the fiscal fourth-quarter that ended on September 30th rose by 20% to $1.27 billion, or 73 cents per share, from $1.06 billion, or 62 cents per share, in the year-ago quarter.

Excluding stock-based compensation and other items, the company's profit per share was 89 cents, compared with the analyst consensus of 82 cents.

Revenue grew by 18% to $4.87 billion, easily topping Wall Street expectations for $4.66 billion in sales.

Qualcomm said it shipped 141 million chips, an increase of 11% from a year ago. The ASPs for its chips increased by 9% sequentially to $22.19 from $21.16, driven by a strong mix of LTE chip sales.

The company said reported device sales totaled $46.5 billion, up 19% year over year but down -3% sequentially. It estimated that there were approximately 210 million to 214 million 3G or 4G units shipped by licensees during the same period at an average selling price (ASP) of $216 to $222 per unit.

Qualcomm said it expected December quarter revenue of $5.6 billion to $6.1 billion and adjusted EPS of $1.08 to $1.16 versus the consensus of $5.3 billion in revenue and $1.00 per share of adjusted profit. On a GAAP basis, Qualcomm said its first-quarter earnings per share would be between 90 cents to 98 cents. ...

Outside of earnings, Qualcomm is the dominant player in the high-end smartphone market with its Snapdragon chip, where demand has been outstripping supply. The company is an arms dealer in the high-end smartphone and tablet markets, and wins no matter whether consumers are choosing Apple (AAPL), Samsung, or other OEM's devices.

However, MediaTek and to a lesser extent Broadcom have been taking share in the lower-end Android market that is particularly popular in developing nations. Qualcomm is looking to introduce two new chips aimed at this segment this year to try to regain market share, and its scale and global relationships with OEMs gives it an edge.

More interestingly, though, the company is designing a new chip that will support 3G networks as well as China Mobile's (CHL) proprietary TD-SCDMA network. China Mobile has the largest subscriber base in the world, but its 3G efforts have been hampered by its proprietary network and handset makers having to make special solutions to support it. Qualcomm's new chip would eliminate that problem and could be a strong growth driver next year.

While competition has been becoming fiercer in the low and medium end of the smartphone market, it should also be noted that Qualcomm's licensing business still benefits from the move to 3G and 4G networks and the proliferation of devices that support these standards. And the licensing business still generates about 75% of the company's revenue and is very high margin. ...

The full earnings analysis includes a look at historical earnings data and EPS trends for the companies above and more; examines past investor reactions to earnings in various contexts; gives options activity analysis; reviews previous-quarter earnings; and gives an opinion on both what earnings will look like and how investors will react based on the aforementioned data points.

Just a few of the correct calls made for Q4 so far were:

  • to be bullish on Netflix (NFLX) ahead of earnings.
  • to be bullish on Cree (CREE) ahead of earnings.
  • to be bearish on Bank of America (BAC) ahead of earnings.
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