Earnings Edge: 2 Stocks Ready to Break Higher (LZB & SWBI)
We are in the final stages of the first-quarter earnings season, and that means fewer and fewer companies making announcements.
That’s okay because there are still interesting reports that are moving stocks.
Last week, we looked at Vail Resorts Inc. (NYSE: MTN), which saw its stock steadily decline after reporting better than expected results. As I mentioned in Earnings Edge, this is a seasonally weak period, and shares could dip before rallying late in the year.
Well, earnings looked like they officially kicked off that decline for the stock, with shares dropping as much as 4.5% in the days following its report last week.
On the other hand, we had Marvell Technology (Nasdaq: MRVL) report better than expected earnings as well, but the stock jumped more than 4% on the news.
It was the breakout we were looking for, and now Marvell is in play for bullish opportunities.
Today, we’ll use technical analysis to break down what we can expect from two more popular brands — La-Z-Boy Inc. (NYSE: LZB) and Smith & Wesson Brands Inc. (Nasdaq: SWBI).
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Earnings Edge Stock No. 1: La-Z-Boy Inc. (NYSE: LZB)
Earnings Announcement Date: Tuesday, after the close.
Expectations: Earnings at $0.74 per share. Revenue at $498.53 million.
Average Analyst Rating: Outperform.
The furniture industry is extremely consumer reliant.
Luckily, it’s been the American consumer powering the economy forward despite the latest Labor Department reading indicating that prices are rising at the fastest pace since 2008.
Still, the headwinds in the furniture industry due to shipping congestion and factory shutdowns have created a sideways movement for LZB over the first six months of 2021.
Take a look:
Economic Headwinds Push LZB Sideways
The stock is trading basically where it at the beginning of the year; you can see the red resistance line across the top is steady. But, there is a rising support line — in green —closing in on the resistance level.
It has created an ascending triangle pattern, which is great to see.
These patterns typically are continuation patterns, meaning stocks break out in the same direction they were headed in before they formed.
For LZB, that trend was heading higher.
With the broad ascending triangle pattern taking shape, we are looking for a massive breakout in the coming months.
This week, that’s something to keep on your radar.
Traders in the options market are betting on a 4.5% move on earnings. Knowing consumer strength and that this chart pattern is typically bullish, I wouldn’t take the bearish trade on earnings.
There’s too much potential for the stock to soar.
Earnings Edge Stock No. 2: Smith & Wesson Brands Inc. (Nasdaq: SWBI)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $1.08 per share. Revenue at $259.80 million.
Average Analyst Rating: Outperform.
The gun producer and seller had experienced a surge in demand after the pandemic.
But the surging stock price was short-lived. After topping out in August 2020, the stock crashed 45% before stabilizing.
Now, it is trying to build some momentum again just as earnings show up — that could aid or ruin what the stock has done the last few weeks.
Here’s what I mean…
SWBI’s Upswing Is Volatile
We have our clear trends to watch, with a dotted orange line heading lower — a key area of resistance in recent months before breaking May.
The green support line across the bottom is a bigger picture. This starts at the point of its breakout in 2020 and has been hit several times since then.
Then there’s the main level I’ll be watching, in red.
This was a short-term resistance after the crash when SWBI stabilized. You can count six or seven times the level was tested but not broken, and one time it broke for only a few days.
Now, it has proved to be a critical area once again and will be my key level of support to watch over the next few weeks to make sure this stock is holding onto its latest uptrend.
I believe it holds up. That’s why I wouldn’t bet against SWBI this week. With a recent breakout and near-term support area, look for the stock to head higher in the coming weeks.
The options market is looking for just a 2% move this week on earnings.
That’s nothing to be concerned about. With the volatility we have seen, I’d expect a bigger move than that on the report.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.