Technology stocks dominated the earnings landscape in the latest week as investors responded positively to reports from Microsoft (MSFT) and Alphabet (GOOGL). Amid improving stock market health, OXY stock headlines a busy week of earnings for oil and gas stocks.
XFive Leaderboard stocks are also on the earnings docket as well as reports in the energy patch from Occidental Petroleum (OXY), Devon Energy (DVN), Diamondback Energy (FANG) and EOG Resources (EOG). OXY stock has held up better than a lot of other energy stocks as it battles for support at the 50-day moving average.
Earlier this month, Warren Buffett disclosed he bought another 12 million shares of OXY stock, bringing his stake to nearly 20%. Occidental reports Tuesday after the close.
Meanwhile, a handful of Leaderboard stocks will report on Aug. 4, including Cheniere Energy (LNG). LNG stock joined Leaderboard when it broke out of a downtrend on Tuesday.
Watch for reports from other top growth stocks like Quanta Services (PWR), Lantheus (LNTH), Eli Lilly (LLY) and Vertex Pharmaceuticals (VRTX).
In the financial sector, LPL Financial (LPLA) jumped over the 200 level Thursday with results due Tuesday after the close. The provider of investment advisory services has healthy annual earnings estimates. Profit this year is expected to rise 41% to $9.88 a share, with growth accelerating in 2023, up 57%.
OXY Stock Passes Key Test
Occidental shares moved nicely above its 50-day moving average Friday, helped by strong earnings reports from Exxon Mobil (XOM) and Chevron (CVX).
Like many other oil and gas producers, OXY shows booming revenue growth in recent quarters. In its latest reported quarter, revenue jumped 56% to just over $8.5 billion, a slight slowdown from triple-digit year-over-year growth in the prior three quarters. Broken down by segment, oil and gas revenue jumped 66% to just over $6 billion. Chemical revenue increased 55% to $1.68 billion.
For the current quarter, the Zacks consensus estimate is for adjusted profit of $2.93 a share, up 816% from the year-ago quarter. Revenue is expected to rise 62% to $9.74 billion.
OXY stock has a Composite Rating of 99, the highest possible from IBD, making it the No. 1-ranked in its industry group. The rating is helped by strong fundamentals and leading price performance.
OXY stock looks a little better than Devon Energy, which has started to work its way higher after finding support at the 200-day line. DVN is still below its 50-day line, though, with results due Monday after the close. Diamondback Energy is trying to get above its 200-day line, with results due late Monday as well.
Earnings Setups to Watch
Health insurer Cigna (CI) reports early Thursday. It's back near a 273.68 entry after a pullback to its 50-day moving average.
Results from IBD 50 firm Funko (FNKO) are due Thursday after the close. On Thursday, it climbed above the 26.03 buy point of a big cup-with-handle base.
Axonics (AXNX) isn't profitable yet, but the company shows healthy revenue growth in recent quarters, along with outstanding mutual fund sponsorship. It reports Monday after the close, along with fertilizer stocks CF Industries (CF) and Mosaic (MOS). AXNX stock is trading near a 65.12 entry.
Solar stocks were in the news Thursday after Sen. Joe Manchin and Senate Majority Leader Chuck Schumer reached an agreement on a climate, energy and tax package. On the heels of a bullish earnings report from Enphase (ENPH), SolarEdge (SEDG) reports Tuesday after the close. SEDG gapped up over a 314.62 buy point Thursday.
Options Trading Strategy
A basic options trading strategy around earnings using call options allows you to buy a stock at a predetermined price without taking a lot of risk. Here's how the options trading strategy works.
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Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price.
First, identify top-rated stocks like OXY stock with a bullish chart. Some might be setting up in sound early-stage bases. Others might already have broken out and are getting support at their 10-week moving average for the first time. Some might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price. A put option gives the holder the right to sell 100 shares of a stock at a specified price. You earn profits when the stock falls below the strike price with a put option.
Check Strike Prices
Once you've identified some bullish earnings setups for a call option, check strike prices with your online trading platform or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask. Look for a strike price just above the underlying stock price (out of the money) and check the premium. The premium ideally should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn't too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most that can be lost is the amount paid for the contract.
Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price.
OXY Stock Option Trade
Here's how a call option trade recently looked for OXY stock
When it traded around 62.25, a slightly out-of-the-money weekly call option with a 62.50 strike price (Aug. 19 expiration) came with a premium of around $2.65, or nearly 4.3% of the underlying stock price at the time. That's above the 4% threshold, but there's a good amount of time for the option to work.
One contract gave the holder the right to buy 100 shares of OXY stock at 62.50 per share. The most that could be lost was $265 — the amount paid for the 100-share contract.
When taking the premium paid into account, OXY would have to rally past 65.15 for the trade to start making money (62.50 strike price plus $2.65 premium).
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight
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