Earnings results are, over the long-term, the most fundamental factors behind a stock’s performance. That said, for some companies, certain quarters are more noteworthy than others.
Caterpillar Inc. (NYSE:CAT) is play on global growth
Caterpillar Inc. (NYSE:CAT) is a maker of heavy machinery, but more fundamentally, a play on global growth. Spending on infrastructure fuels most of the company’s business, which is why Caterpillar — unlike other companies — typically gives its expectations for the global economy in the coming years.
More specifically, Caterpillar is heavily exposed to China. Shares were trading above $100 last winter, but are down nearly 30%, perhaps on fears of a Chinese economic slowdown. Recent Chinese economic data has been poor, notably first-quarter GDP growth.
As China’s economy continues to expand, it remains one the largest buyers of commodities, particularly on the margin. Investors should pay attention to what Caterpillar has to say about China’s economy, as it could have significant consequences for all commodity names.
On the last earnings call, Caterpillar’s management said that it expected economic improvement in China this year. It will be interesting to see if they reiterate those comments, or change their tune.
Apple Inc. (NASDAQ:AAPL)’s earnings will show if the iPhone is holding up against the competition
Apple Inc. (NASDAQ:AAPL) will report Tuesday, and all eyes will be on the Cupertino tech giant. After dropping roughly 40% from the high hit last September, investors will be looking to see if the company can do something to reverse the slide.
Apple Inc. (NASDAQ:AAPL) remains reliant on the iPhone for the majority of its profit; with more competitors emerging than ever before, has iPhone demand held up over the quarter? Or is the iPhone losing ground to its Android-powered rivals?
Even more pressing will be talk of potential capital returns. Apple Inc. (NASDAQ:AAPL) is currently sitting on about $140 billion worth of cash, and plenty of investors are eager to see the company return that money to shareholders.
Investors should watch Apple Inc. (NASDAQ:AAPL)’s earnings release for any talk of capital returns — through an increased dividend, or expanded share repurchase program. Either undertaking could send shares sharply higher, while a total avoidance of the issue could have a devastating effect on Apple Inc. (NASDAQ:AAPL)’s shares.
Zynga Inc (NASDAQ:ZNGA) could shed some light on social gaming and online gambling
After dropping precipitously from its IPO price, Zynga Inc (NASDAQ:ZNGA) is now trading well below $5. Yet, a number of analysts — including those at Bank of America — are bullish on the stock.
The popularity of Zynga Inc (NASDAQ:ZNGA)’s bread and butter market — social gaming — has declined in recent months, with Electronic Arts Inc. (NASDAQ:EA) announcing that it would pull the plug on three of its Facebook Inc (NASDAQ:FB) games earlier this week.
Does Electronic Arts Inc. (NASDAQ:EA)’s decision foreshadow a growing trend, or is it specific to that company? Zynga Inc (NASDAQ:ZNGA)’s results should shed some light on the continued profitably of social gaming, which could have an effect on shares of Facebook Inc (NASDAQ:FB).
Further, Zynga Inc (NASDAQ:ZNGA) has recently taken some aggressive action towards becoming a player in online gambling. Although only three states have legalized the practice, more could follow. Many investors, including hedge fund titan John Paulson, are betting on the future legalization of online gambling in US, either through Zynga shares or another company like Caesars Entertainment Corp (NASDAQ:CZR).
Whatever Zynga Inc (NASDAQ:ZNGA)’s management has to say about online gambling could affect that entire sector.
Coinstar, Inc. (NASDAQ:CSTR) and Deckers Outdoor Corp (NASDAQ:DECK) are heavily shorted
The last two companies aren’t particularly interesting from a broad market perspective, but could present profitable short-term trading opportunities.
Both Coinstar, Inc. (NASDAQ:CSTR) and Deckers Outdoor Corp (NASDAQ:DECK) are heavily shorted, with roughly 48% and 35% of their shares sold short, respectively. If either company posts a solid earnings report, shares could surge as short sellers are forced to cover their positions.
In the case of Coinstar, bears are banking on the coming decline of its Redbox business — consumers are increasingly forgoing DVDs in favor of digital downloads. Famed short seller Jim Chanos has publicly called Coinstar a great short, alleging that its Redbox business makes it a value trap.
Deckers Outdoor, on the other hand, is primarily a specialty footwear company, known mostly for its UGG boots. Like Crocs before it, short sellers are probably expecting a dramatic decline in the popularity of UGGs, as changing fashion styles could destroy the company’s business.
Both companies report Thursday, and could be some of the biggest movers in the after-hours session.
The importance of earnings season
Earnings season is vitally important, as earnings remain the long-term driver behind stock prices. Investors should always follow the earnings results of any company they happened to be involved in. But for companies they aren’t invested in, such a tremendous amount of information is difficult to follow. However, the five stocks I’ve identified are worth paying attention to, at least for next week.
The article These Are the Most Interesting Earnings Releases Next Week originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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