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Despite earnings season being largely in the rear-view mirror, there are a number of companies yet to report, including some big names. We want
to look at a few companies reporting in the near future that we think the Street is wrong about, i.e., they’re bearish when they should be bullish,
and bullish when they should be bearish.

But that creates the perfect opportunity for us to profit when trading earnings. You see, pessimistic sentiment reflects lower expectations that
often lead to upside earnings surprises. Conversely, optimism represents higher expectations and, thus, can create some vulnerability if those expectations
aren’t met.

So we’re going to give you three stocks we think will surprise the Street by rallying after earnings, and share one stock that the Street likes
that’s really not so hot after all.

Next: Hot Stock #1

Hot Stock #1: Dell (DELL)

Dell () reports earnings on Thursday, Feb. 18. Analysts expect
EPS to come in a few pennies less than a year ago (27 cents versus 29 cents), while the whisper number is a tick higher at 28 cents. So expectations
aren’t terribly onerous.

Sentiment toward DELL is hardly bullish. The put/call ratio is at a peak that defined a bottom in the share price in December. Only 42% of covering
analysts rate the stock a “buy.” That tells us that DELL could be in for some unwinding pessimism that translates into , especially if earnings and the outlook satisfy the Street. And that’s something DELL has done a decent job of during the past year.

Technically, the stock is bouncing off solid support at $13. A run-up to the December high just above $15 would represent a rally of almost 9%.
That’s plenty of movement to justify buying a DELL March call option.

Get .

Next: Hot Stock #2

Hot Stock #2: Costco (COST)

Whether or not you believe we’re coming out of this recession, low-priced stores such as Costco () should
continue to do well. Customers will not suddenly switch to higher priced options just because the GDP is perking up. And COST tacks on a membership
fee to boot, so they have room to manipulate prices lower if they feel the need. That’s a solid business model.

COST reports earnings on March 10. Analysts expect 71 cents per share, a healthy 29% increase from a year ago. But the year-ago figure was the lowest
in two years, so the comparison is skewed. 

We like COST mainly because our other indicators are showing a lukewarm reaction to the stock. Put buyers have been out in force lately, pushing
the put/call ratio to a nine-month high. Meanwhile, fewer than half of covering analysts give the stock a “buy” rating. And short interest is also
high. Bottom line: We’re seeing lost of pessimism on a fundamentally sound company that’s well-positioned in the current economy (or any economy,
for that matter).

Throw in a chart showing the stock in the midst of a solid rally off its January bottom, and COST looks like a solid bullish candidate. We expect
the stock to continue its run-up into earnings. Jump on board now with COST March calls to take advantage of the pre-earnings move.

Next: Hot Stock #3

Hot Stock #3: Medco Health Solutions (MHS)

Medco Health Solutions () is a drug wholesaler that operates through
mail-order and retail pharmacies. Another name in this space, CVS Caremark (),
recently reported a surprising sales jump that prompted a 5% pop in its share price. Sales trends are favoring bulk buying and multi-month prescription
plans, areas that MHS excels in.

MHS reports earnings on Feb. 23. Analysts expect 75 cents per share, a healthy 27% increase from a year earlier. But MHS hasn’t missed an estimate
going back seven years. What’s more, the whisper number is only 70 cents, which shows some hesitancy among traders. We like such reservations before
earnings. The other factor we like is the put/call ratio, which has spiked sharply during the past couple of weeks. That tells us that options players
are having their doubts about the company’s prospects.

On the charts, MHS is finding strength at its ascending 100-day moving average. The stock has about 8% of upside to match its January high, so there’s
plenty of room to run. With earnings expectations muted, the company having an excellent record of beating estimates, strong technical support, and
a high put/call ratio, we like the stock’s prospects. Look at MHS March calls.

Next: And Now a Stock That’s Not so Hot …

Activision Blizzard Inc. (ATVI)

Video game maker Activision Blizzard Inc. () blitzed the Street
last week with a solid earnings report, thanks to huge sales of its latest “Call of Duty” offering. Profits and revenue beat forecasts, though revenue
was down from a year ago. In addition, the company issued a quarterly forecast that fell below Wall Street estimates. But the stock popped more than
9% on the news. Perhaps that was because the shares had fallen more than 20% from their October high on concerns of a sector-wide slowdown in sales.
In fact, ATVI’s blockbuster “Guitar Hero” franchise saw a significant drop in holiday sales compared to a year ago.

So now what? Well, we think ATVI could have some trouble for the next month or so. With the good news out of the way, the stock now faces some formidable
overhead . What’s
more, sentiment toward the company is very optimistic, which leaves the shares vulnerable to any disappointing news from not only ATVI, but the sector
as a whole. With 26 of 27 analysts rating the shares a “buy,” where will future upgrades come from? With the put/call ratio near an annual low, can
call buyers continue to sustain the shares? We’re just not seeing where the fuel will come from to keep ATVI headed higher.

We expect ATVI to weaken after its earnings pop. Over-the-top optimism should unwind a bit, putting pressure on the shares. This may take some time,
though, so we’d play an ATVI April put to capture the expected downside move.

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