One thing is certain in these uncertain times: Volatility isn’t over.
President Biden tried to attribute February’s 40-year high inflation to Russia’s invasion of Ukraine and the resulting sanctions. In reality, sanctions on Russia are not reflected yet. The little bit that we have seen in March already is just the start.
The Council of Economic Advisers, a White House entity, tweeted:
However, there has been substantial run-up in energy prices since February resulting from the Russian invasion of Ukraine. Energy and commodities prices will likely contribute substantially to inflation in the coming months.
— Council of Economic Advisers (@WhiteHouseCEA) March 10, 2022
This directly contradicts what Biden highlighted in his release and shows us what we have in store for the months ahead.
We already see a correction in the market, and because of that, almost all the stocks set to report earnings this week are in a downtrend at the moment.
Except for two.
Commercial Metals Company (NYSE: CMC) and Ryan Specialty Group Holdings (NYSE: RYAN) are the only two showing a strong uptrend before their next report. As such, earnings this week could prove pivotal. Investors could realize how much these companies benefit from the current market environment or realize they are prone to the same economic weakness affecting every other stock.
Here’s what to watch this week…
Earnings Edge Stock No. 1: Ryan Specialty Group Holdings (NYSE: RYAN)
Earnings Announcement Date: Tuesday, after the close.
Expectations: Earnings at $0.28 per share. Revenue at $378.53 million.
Average Analyst Rating: Outperform.
Ryan Specialty Group is an international insurance firm that went public just last July. It doesn’t have much price action so far, but it is very interesting to see a company like this climb despite the overall market weakness.
Usually, the market isn’t kind to newly public companies, but RYAN has been in business for over a decade, making it less risky.
Still, RYAN is showing resistance at $41 already, with that marking the top in recent months, as you can see in the chart below.
RYAN’s Volatility Could Prove Profitable
It will be interesting to see how RYAN’s insurance business holds, especially its European side. They underwrite trade products, which could manage risk to assets like oil.
After all the volatility we have seen, that could be why their stock is holding up so far.
Now investors want to see if they are getting more interested parties and structuring more insurance products to grow their business.
The options market is pricing in a 3.75% move over the week.
That’s something I think the stock should easily top.
As I mentioned, volatility isn’t going away. And for traders, volatility is our best friend.
A play like this — where the market is only pricing in a 3.75% move on earnings after the stock just dropped 10% on a non-earnings week — could be lucrative.
If you are unsure about the direction, a straddle could position you for a big move. A 10% move in the stock would have you in profitable territory if you just buy an at-the-money strike.
Earnings Edge Stock No. 2: Commercial Metals Company (NYSE: CMC)
Earnings Announcement Date: Thursday, before the open.
Expectations: Earnings at $1.37 per share. Revenue at $1.9 billion.
Average Analyst Rating: Hold.
It makes a lot of sense to see CMC stock climbing. It’s a steel company.
Its main operations are in the U.S., Poland and China. Wars are never pretty. And what Russia is doing to the Ukrainian people and country is devastating.
But you couple the need to rebuild an entire country with surging inflation and strong demand, and you get a red-hot mix for steel stocks like CMC.
The problem is investors are already pushing the stock higher when not much has come to reality yet. Inflation is just beginning, and Ukraine is years away from being rebuilt.
That’s why this earnings report will be key to keeping the stock elevated.
You can see the clear uptrend on its price chart.
CWC’s Ukraine-Driven Uptrend
CMC is trading at the top of the range, though. Plus, the bars are shaded green. That tells me the stock leads the market based on my “Profit Radar.” This isn’t necessarily alarming, but it points toward a pullback just in time for earnings.
So I’m looking for a dip in the steel stock this week that gives way to a better buying opportunity.
If we get a breakout to the upside, go with it. Don’t let the top of the chart feel like a resistance level. It’s not. This stock is only trading around $40 a share but could rip with all the lining up for steel demand.
This is another play where a straddle is your best bet. Traders are only pricing in a 4% move on the week of earnings.
The stock rose 4% last Thursday. If it can move that much on a typical day with this environment, it could easily jump more than 10% this week on earnings.
Editor, Quick Hit Profits