2 Stocks Face a Huge Earnings Test (BOX & COST Analysis)

2 Stocks Face a Huge Earnings Test (BOX & COST Analysis)

Last week’s Earnings Edge stocks came up well short.

Walmart and Target both tumbled on earnings, signaling much deeper weakness in our economy than just pain at the pump.

The surging inflation numbers are affecting consumers in a big way.

That’s going to make it tough for the U.S. to avoid a recession here — if we aren’t already there.

Former Federal Reserve Chair Janet Yellen said that the Fed can bring inflation down without causing a recession, and she doesn’t expect the U.S. to fall into one.

That’s a bold statement considering the current market outlook.

Market prices tend to reflect the data in real time. But recessions don’t reveal themselves until months later due to a lag in reporting.

In short, the market is already showing us a recession is here.

Blue-chip companies like Walmart and Target tumbling double-digits on earnings isn’t what you typically see in a growing economy.

Today we’ll look at Box Inc. (NYSE: BOX), a cloud computing stock, and another big chain consumer stock, Costco Wholesale Corp. (Nasdaq: COST).

Earnings Edge Stock No. 1: Box Inc. (NYSE: BOX)

Earnings Announcement Date: Wednesday, after the close.

Expectations: Earnings at $0.25 per share. Revenue at $234 million.

Average Analyst Rating: Outperform.

The thing I love about Box is that it was a pandemic winner. It benefited from more people working remotely and using the cloud to store critical data.

But it hasn’t plunged as sharply as other winners. BOX is only down 18%, compared to more than 50% losses for so many other companies.

It’s kept the stock in the uptrend that it’s managed over the last couple of years, a rare thing to find in a tech company right now.

So BOX will be a must-watch stock reporting this week.

BOX Resists the Sell-off Trend

BOX stock chart earnings

BOX is testing a key support right now (the red line) and has another major support just below it (in green).

These trend lines are carried over from an ascending triangle pattern that the stock broke out to the upside earlier this year.

It’s great to see BOX holding an uptrend in this weak market, but we’ve seen stocks fail to hold these levels a lot lately.

Earnings will be a true test.

Earnings Edge Stock No. 2: Costco Wholesale Corp. (Nasdaq: COST)

Earnings Announcement Date: Thursday, after the close.

Expectations: Earnings at $3.03 per share. Revenue at $51.4 billion.

Average Analyst Rating: Outperform.

After seeing the weakness in Walmart and Target, I had to include Costco as a stock to watch.

I go there at least once a week to fight the rising gas prices. Costco has the best prices around. And when you use premium like I do, it’s the only place you want to fill up.

But the pain at the pump is real, and it has to be affecting Costco’s sales inside the warehouse, even if it’s experiencing strong demand at the gas pumps.

As Target shares sank, Costco sold off double-digits as well. This was all in anticipation for what the company will report this week.

COST Followed Retail Lower

COST stock chart earnings

It also happened to break a key support (green line), signaling more weakness may be ahead.

The options market is pricing in a 5% move on COST. They are finally catching on.

If you remember last week, TGT and WMT both only had a 2% to 3% expected move.

That number has just about doubled for Costco after the two big misses and more market volatility.

That makes this a stock to avoid when it comes to options.

The big picture in the market right now is things are oversold. Stocks have been dropping for weeks, and a rally is right around the corner.

So even though this trend-break in Costco is bearish, it doesn’t mean the stock can’t rally over the next few weeks before turning lower again.

If we get that rally, I’d look to load up on puts for more bearish action through the summer months.


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