Diebold Could Rally into Earnings

Buy the rumor, sell the news. I suspect this Wall Street adage has survived for so many years because the strategy behind it still works. It works especially well in earnings' season, which is now upon us. Many times, a stock's price will rise just ahead of an earnings announcement. This price increase is fueled by investors' positive anticipation (think rumor) that when that company's earnings are announced, they will beat estimates. Of course, the earnings announcement, itself, is the news. When I conduct an earnings play using the buy-the-rumor tactic, I purchase shares of stocks that have a good chance of rising into the earnings date. Preferably, I buy the stock three to five weeks before the earnings announcement. I sell the position before the actual announcement takes place. Now, you can argue that by selling my shares just before the earnings report is issued that I leave money on the table at times, especially if the earnings do beat Wall Street consensus. Still, none of us knows what the actual announcement will say. And, if earnings or revenue or guidance disappoints, the stock price is usually punished. I prefer to escape that event. So, my strategy remains buy the rumor three to five weeks ahead of the scheduled earnings date and sell the news just before the report is issued. My current earnings play is Diebold (DBD). Diebold's less-than-sterling earnings in 2013 kept the stock price from moving higher. Still, the security company's third-quarter earnings beat Wall Street's consensus nicely, coming in at $0.56 per share, beating the $0.42 consensus of the analysts covering the company. Diebold also pays a dandy annual dividend of $1.15 per share, currently yielding 3.42%. Diebold is scheduled to release its fourth-quarter earnings report on Feb. 10. Analysts' upbeat consensus expects $0.59 earnings per share, as compared with $0.45 EPS in the fourth quarter 2012. With those considerations in mind, let's move to Diebold's daily chart and drill down to recent price action. Diebold (DBD) Source: RealTik View Chart » View in New Window » From the second quarter forward in 2013, Diebold traded in a range from its July high at about $35.50 to its September low at about $28. Price managed to reverse upward from that September low and climb up to trade between $29 and $30.50 for the next two months, using its 20-day simple moving average (red on this chart) and 50-day SMA (green) for support, and skating just beneath the 200-day SMA (black). In November, Diebold finally got its mojo back when positive press and analysts' revisions for upcoming earnings sent the stock to a Nov. 29 high of $34.44. Since then, price retraced to its December low, $31.36, and then crept higher to its present price at $33.71. Diebold is trading above its rising 20-, 50- and 200-day moving averages. The relative price index (RSI) is trending higher. The MACD line (black, bottom scale) is crossing above the MACD signal line (red), also positive. If market conditions are favorable, in upcoming days, I will purchase one half of my intended position in Diebold in an entry window between $32.50 and $33.80. When or if price moves above the aforementioned November high, and over $34.50, I will add the remaining shares. My initial protective stop (trail) will be placed at $32, and my initial profit target is at $35.50. I intend to sell my position latest on Friday, Feb. 7 (or sooner, if I am stopped out). Again, Diebold is scheduled to announce earnings on Monday, Feb. 10.

Diebold Could Rally into Earnings

This may be a good buy-the-rumor opportunity.

Columnist Conversation

A Good Way to Take Advantage of Last Week's Selloff

This Weekend on Real Money

My Updated Market Stance

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.