The stock market uptrend is still intact despite ugly earnings sell-offs for Google parent Alphabet (GOOGL), Microsoft (MSFT) and Meta Platforms (META). DVN stock headlines a busy week of oil and gas earnings, while growth investors are eagerly awaiting results from Arista Networks (ANET), Lantheus (LNTH) and Paylocity (PCTY).
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Devon Energy (DVN), which has delivered triple-digit revenue growth in four out of the past five quarters, reports earnings Tuesday after the close, along with Chesapeake Energy (CHK), Comstock Resources (CRK) and Magnolia Oil & Gas (MGY). DVN stock has been hitting new highs in light volume, a weakness.
DVN Stock Near Highs
Devon has major operations in the Delaware Basin of the oil-rich Permian Basin, as well as other areas like Eagle Ford, Anadarko Basin, Powder River Basin and Williston Basin.
When the company reported second-quarter results in early August, earnings per share soared 332% year over year to $2.59 a share. Revenue jumped 133% to just over $5.6 billion.
Q2 production averaged 616,000 oil-equivalent barrels (BOE) per day, up 7% from Q1. Most of the production came from the Delaware Basin, which jumped 22% year over year to 436,000 BOE per day.
For the current quarter, the Zacks consensus estimate is for adjusted profit of $2.13 a share, up 97%. Revenue is expected to rise 42% to $4.91 billion.
Elsewhere, fast-growing lithium producer Albemarle (ALB) is also on the earnings calendar, with results due late Wednesday. When ALB reported Q2 results in early August, adjusted profit surged 288% to $3.85 a share. Revenue growth was also impressive, up 91% to $1.48 billion. Lithium is one of the key components in electric-vehicle batteries, and supply is tight.
In late June, Albemarle announced plans to build a lithium processing plant in the U.S. with the goal of producing with 100,000 tons of annual capacity. Albemarle hopes to boost its annual lithium production capacity fivefold to 500,000 tons by 2030. Group peer Livent (LTHM) reports Tuesday after the close.
CF, LLY, PCTY Set To Report
CF Industries (CF) is in a new consolidation and back above its 10-week moving average. The fertilizer giant reports earnings Wednesday after the close, along with Cross Country Healthcare (CCRN), Elf Beauty (ELF) and World Wrestling Entertainment (WWE).
Results from Eli Lilly (LLY) are due Tuesday before the open. Earlier in October, the company received fast track designation from the U.S. Food and Drug Administration for tirzepatide for the treatment of adults with obesity. In May, the FDA approved the drug to improve blood sugar control in adults with type 2 diabetes.
In the enterprise software group, Paylocity (PCTY) reports Thursday after the close, along with AMN Healthcare (AMN) and Yelp (YELP).
Paylocity, a cloud-based provider of payroll and human capital management software, soared in early August when the company reported a 74% jump in quarterly profit. Revenue increased 37% to $229 million.
For the current quarter, Paylocity is expected to earn 61 cents a share, up 3% year over year, with revenue up 32% to $329.9 million.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week moving average for the first time. And a few might be trading tightly near highs and refusing to give up much ground.
DVN stock could be a candidate for a call-option trade due to healthy fundamentals and technicals. Avoid extended stocks that are too far past proper entry points.
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In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.
You earn profits when the stock falls below the strike price with a put option.
Check Strike Prices
Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.
DVN Stock Option Trade
Here’s what a recent call option trade looked like for Devon Energy.
When DVN stock traded around 76.50, a slightly out-of-the-money weekly call option with a 77 strike price (Nov. 11 expiration) came with a premium of around $3.40, or 4.4% of the underlying stock price at the time.
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One contract gave the holder the right to buy 100 shares of DVN stock at $77 per share. The most that could be lost was $340 — the amount paid for the 100-share contract.
When taking the premium paid into account, DVN would have to rally past 80.40 for the trade to start making money (77 strike price plus $3.40 premium per contract).
Other top-rated growth stocks set to report earnings that could make sense for earnings option trades include Eli Lilly (LLY), ANET stock, CF stock, PCTY stock, ALB stock and Regeneron Pharmaceuticals (REGN).
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight
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Source: https://www.investors.com/research/earnings-preview/dvn-stock-headlines-big-week-energy-earnings-lithium-giants-albemarle-livent-set-to-report/?src=A00220&yptr=yahoo