Earnings season started out with a bang last night. Netflix (NFLX) delivered in a big way after banks slogged through last week's earnings. Then again, I never expect much out of banks around earnings season. It's the same way I feel about utilities. We glance at the results, perhaps read past the headline numbers, and then return to business as usual. It's not the same with technology or retail.
The huge start in tech has me approaching earnings season a bit more conservatively. I'm using the dips to pick up a few names in the consumer staples space, preferably something with a 2%+ yield if I'm playing stock. The rest of my focus has been on underperforming names or perceived value.
On the retail side of the world, I love that Walmart (WMT) is hated right here. For the record, I'd put Disney (DIS) a close second and an alternate to consider. Admittedly, Walmart would be very hard to own under $85, but we're trading flat versus last fall. If $85 fails, then I believe the $75-77.50 area represents a worst case scenario. It's been quite some time since we've seen this name this oversold. After a 12% year-to-date drop, even if Walmart disappoints, I think we've seen the bad news price into shares. The yield is close to 2.5% here and the company still maintains sales near a half-trillion dollars. Stop and think about that for a moment. It's a mind boggling number. Add in earnings close to $10B, about 4x that of Amazon (AMZN) , and we're not going to see Walmart simply fade into the gray. It's an interesting counterplay here in the retail sector with an attractive risk versus reward for 2018.
Another hated name for me I lean towards owning during earnings season is Chipotle Mexican Grill (CMG) . While the stock is 13% higher year-to-date, it is down by almost 30% over the past year and well off all-time highs, deservedly so. Did you try that queso? But we have new management in play here along with a huge short interest that could get burned should the stock push above $350. In fact, I believe a quick move to $400 is begging to happen in 2018. Our stop here is $310. I wouldn't want to be long under that level. Yes, consumers can be fickle and slow to forgive, but when it comes to food, our stomachs often win. CMG offers enough to the taste buds to draw folks back into stores. Bad memories of the illness and the stock are fading. This is another name with a lot of negativity already priced into shares.
Lastly, I want to jump out of earnings related names and get into a name with some diversity. Well, diversity away from equities. I'm looking at GOLD here, but not the metal, Randgold Resources with the ticker symbol (GOLD) . Despite the underlying commodity rising just a bit, GOLD has fallen off more than 18% this year. In terms of miners, this has one of the largest market caps, but with no debt, positive cash flow, a 2.5% yield, and strong margins, I believe it offers opportunity for those looking to add both yield (income) and diversity away from equities. The stock is trading against big support levels from more than a year ago. If I wanted to assume worst case here, I'd say it could fall as far as $60, but the upside from here is $120, so you are risking $20 against a possible $40. If GOLD did retrace all the way to $60, I would look to add more. This is the one miner I'm content owning in a long-term format.
As always, I'll scope out trades specifically into earnings on more volatile and aggressive names, but for those seeking what I believe to be some calm away from the earnings storm, here are three names I find that offer an attractive risk versus reward this quarter: Walmart, Chipotle and Randgold Resources.