Home Depot (HD, $26.20, down $0.76) reported a 24% drop in profits and reiterated its downbeat outlook for the rest of the year. The weak housing market that shows no signs of recovery continues to plague Home Depot but once again, in the scheme of things, their earnings report was not all that bad.

For the quarter, the company said earnings fell to $1.2 billion, or $0.71 a share. This was down from $1.59 billion, or $0.81 a share, during the same period last year. Given the backdrop for housing, I’d say Home Depot did all right. Revenue slipped a little over 5% to $21 billion, down from $22.2 billion last year. Although same-store sales fell nearly 8%, a 10% drop on certain levels doesn’t sound as bad as the 24% drop in profits.

The results easily beat Wall Street’s expectations of $0.61 a share on revenue of $20.6 billion. The better-than-expected results indicate a slight pick-up from an earlier slowdown by consumers who had postponed home improvement projects. Home Depot also projected full-year sales should decline by 5% which means the stock is not out of the woods. However, the bottom is near for Home Depot and if the stock falls back to the $20-$21 level, I’d be a buyer of some longer-term options.

The January 2010 25 calls (WHDAE, $5.00, down $0.70) don’t expire for another 18 months which gives the company five or six quarters to turn things around. The key for us is that we will want to be in the trade before Wall Street notices the turnaround. If these calls can get below $4.00 we will take another look at them.

Rick Rouse
Rick@OptionsMentoring.com

In a day that saw the Dow drop 180 points, Lowe’s (LOW, $24.54, up $0.04) reported 2Q earnings that beat Wall Street’s estimates and its stock held steady. We all knew the housing market would still have an affect on Lowe’s but considering the circumstances, Lowe’s earnings report was actually pretty sweet.

The company reported a profit of $938 million, or $0.64 a share, down about 8% from $1.02 billion, or $0.67 a share, a year earlier. The key that bulls focused on was that sales rose 2.4% to $14.5 billion as the company opened more locations. The flip side of that coin was that same-store sales, or sales at stores open at least a year, dropped 5.3%.

Wall Street was expecting Lowe’s to post a profit of $0.56 a share on sales of $14.1 billion for the quarter. The company expects 3Q profits of $0.27- $0.31 a share with same-store sales expected to drop around 6%. The silver-lining was that Lowe’s said full-year earnings would come in around $1.48-$1.56 a share which was higher than the company’s earlier projection of $1.55.

I didn’t expect much from Lowe’s today and I didn’t think the stock would make any significant move to the upside anyway. I also didn’t think the stock would sell-off either. Lowe’s pretty much said and did what every other company has done so far. They beat lowered earnings and gave a cautious outlook.

If I had to pick between Lowe’s and Home Depot (HD, $26.96, down $0.57), I’d would probably go with Home Depot. In fact, look for a deep-in-the-money long call trade for Home Depot in the next few days.

Rick Rouse
Rick@OptionsMentoring.com

Nvidia (NVDA, $13.00, up $0.74) is up 25% for the month despite reporting a lousy quarter. You know when the company CEO says their quarter was “disappointing” not too much good can come from that. However, it has.

Nvidia reported a 2Q loss of $121 million, or $0.22 a share, versus a profit of $173 million, or $0.29 a share, in the year-earlier period. Revenue came in at $893 million, down from $935 million. When you go from that big of a swing within a year, you can see why the stock has fallen from a 52-week high of nearly $40 to a low of $10. So why the recent bounce?

Although the company said it expects an increase in revenues and slightly higher gross margins in the coming quarters, it was the stock repurchase program that has bulls kirking. Nvidia upped its plans to buy back more of its stock by $1 billion and may purchase up to $3 billion of its stock in the future.

The company has a little over $1.5 billion in cash and said repurchases will be funded from working capital. They won’t be doing this all at once so it will take a year or two (or more) for the whole $3 billion. At current prices, that’s about 40% of the company’s market cap.

Nvidia is in the GPU business (graphics processing units) and makes chips that do cool things. The stock has seen its shares of ups and downs as you can tell from the chart. The company has even emerged from bankruptcy before. The business has been that volatile for Nvidia.

The earnings and buy-back news came Wednesday but on Thursday over 25,000 contracts of the September 12.50 calls (UVAIS, $1.28, up $0.44, or 50%) changed hands. It was 8x that of the September 12.50 puts (UVAUS, $0.70, down $0.30) which fell 30%.

It’s hard to go long with a company that is losing money and Nvidia just reported a loss of 22 cents. Yeah, that really makes you want to rush out and buy the stock or call options, right? I’m on the side of the fence that says the buy-back means nothing right now. It’s a nice gesture for management to say that but if you’re losing $125 mil a quarter, then you might want to hold off.

Nvidia has shown the ability to adapt in the past but when you step back and realize the company is losing money, it would be such a reach to hope for a quick turnaround. However, you have to respect the option action. For you diehard believers of the company, the January 20 2010 calls (KEVAD) are going for $4. That means the stock would have to be trading at $24 by January 2010, or post nearly a double from current levels for you just to break even on the options.

With competition coming from Intel (INTC, $24.36, up $0.24) and AMD Micro Devices (AMD, $5.30, up $0.15), it’s just too risky in my book. I’m not doing an apple to oranges comparision but the Intel January 25 2010 calls (WNLAE) are going for $3.70 which means Intel would have to be at $28.70 by the same time the Nvidia calls expire. I would much rather bet on Intel going from $24 to $29 than Nvidia jumping from $13 to $24.

I don’t have an “easy button” but the choice is clear. Don’t believe the hype with Nvidia, go witht the best in the industry, Intel.

Rick Rouse
Rick@OptionsMentoring.com

Abercrombie & Fitch (ANF, $53.62, up $32.36) and Kohl’s (KSS, $48.85, up $1.26) have been all over the map this week as both companies prepare to announce earnings over the next 24 hours. Kohl’s will announce after the bell today, ANF before the bell Friday.

ANF has been trading between $50 and $55 all week and Kohl’s started the week at $51 and has traded as low as $46 (told you I didn’t trust Kohl’s). The volatility shows the 10% swings both stcoks can make so as I mentioned Monday, there’s no compelling reason to try and trade the retailers right now.

Wal-Mart Stores (WMT, $58.74, up $0.86) beat estimates by two cents today but issued the “cautious” word again. The stock is right where it started the week and Wall Street has once again kept Wal-Mart under $60.

JCPenney (JCP, $37.68, up $2.16) also reports before the bell Friday.

Rick Rouse
Rick@OptionsMentoring.com

Shares of Deere (DE, $61.24, down $8.11) are getting hammered this morning after the company missed Wall Street’s expectations once again. The company reported profits of $575 million, or $1.32 a share compared to last year’s quarter of $537 million, or $1.18 a share. Wall Street had expectations of $1.36 a share. The four cents miss comes after the penny miss from last quarter.

The company’s revenue of $7.7 billion was well above expectations of $7.2 billion but Deere’s raw materials costs have been much higher than expected. Deere also went on to say that raw material costs continue to increase and would have an impact on margins in the upcoming quarter as well.

When a company misses on a quarter, it’s normally a good idea to wait another quarter or two to see how the company rebounds before buying the stock or longer-term call options. That was the case with Deere back in May when I mentioned their penny miss the last time they reported earnings. Although Deere has been able to report an increase in profits quarter over quarter, Wall Street is simply punishing this stock right now.

Deere’s stock fell from $90 to $81 that day and for three weeks it held above $80. I mentioned if key support levels of $79 and $76 were broken that the stock could really breakdown. This kind of “homework” was key for me NOT taking a longer-term play on Deere even though I felt Wall Street had over-reacted to a pretty decent earnings report.

Sometimes the trades you never make are the best ones and the homework you do can not only make you money but save you money as well. The sell-off in Deere has put the stock near its 52-week low but the real key was when the stock fell below $80. Once that happened you could clearly see the breakdown was coming. Deere’s earnings report was the straw that broke the camel’s back.

They may come a time where we take another look at Deere but for right now, I’d stay out of the headlights.

Rick Rouse
Rick@OptionsMentoring.com

Here’s a look at some of the companies that will reporting earnings this week:

Abercrombie & Fitch (ANF, $54.11, up $3.73) announces earnings Friday. The stock fell nearly 10% when the company said same-store sales were down 7% last week. The stock rebounded on Monday after hitting a low of $48.21 on Friday. The August 55 calls (ANFHK, $1.55, up $1.10) were up 244% yesterday. This 55 strike price could be the battle line between the bulls and bears and the options expire this Friday. Too risky to join that trade battle.

JCPenney (JCP, $37.50, up $1.75) is scheduled to report earnings on Friday. The company also announced weaker-than-expected July sales but raised its quarterly earnings guidance on Thursday. JC now expects earnings of $0.50-$0.52 a share, versus its previous guidance of $0.38 a share. The August 40 calls (JCPHH, $0.45, up $0.30) traded over 8,000 contracts yesterday. Maybe there was a lot of selling of these calls because I don’t think JC has the energy to make a push to $40.

Kohl’s (KSS, $51.00, up $4.13) is expected to report earnings on Thursday. Yesterday’s 9% move was impressive. A favorite back-to-school play every year around this time. I’ve never trusted Kohl’s when it comes to predicting their earnings and I have no reason to start. I just hate the way this stock trades.

Macy’s (M, $21.65, up $0.92) reports Wednesday before the bell. The company did not give a 2Q outlook but Wall Street is looking for $0.19 a share on revenues of $5.8 billion. I’ve never followed Macy’s and don’t plan to start now.

TJX Companies (TJX, $37.00, up $0.13) will announce earnings this morning before the bell. The retailer recently raised its 2Q guidance to $0.46-$0.47 a share. TJX said July same-store sales were up 3%. The stock actually set a 52-week high of $37.52 on Monday.

Wal-Mart Stores (WMT, $58.56, up $0.70) reports earnings on Thursday. Wall Street is expecting a profit of $0.83 a share on sales of $102 billion. I’ve mentioned Wal-Mart numerous times here and how it always has trouble holding $60. The stock hit a 52-week high of $61 last Wednesday and quickly gave back those gains by the end of the week. The August 60 calls (WMTHL, $0.33, up $0.11) were heavily traded yesterday and if the stock can make another push above $60, these calls should do well. Be careful though, the $60 mark is acting like quicksand and the trade should be closed before Thursday.

Rick Rouse
Rick@OptionsMentoring.com

Cisco Systems (CSCO, $23.52, up $0.87), the king of beating earnings by a penny, did just that when it reported earnings yesterday after the closing bell. For the quarter, the company reported profits of $2 billion, or $0.33 a share, compared with a profit of $1.9 billion, or $0.31 a share for the year-earlier period. Adjusted earnings were actually $0.40 a share which beat analysts expectations of $0.39 a share. Revenue came in at $10.4 billion, up from $9.4 billion a year ago, and slightly ahead of the $10.3 billion analysts were expecting.

About a month ago, Cisco shares tumbled 5% after the company’s CEO said he didn’t expect the pressure from an economic downturn to let up until early 2009. This, after saying he expected things to ease later this year. When the updated “forecast” was mentioned Cisco had closed at $22.88 the day before and fell to $21.58 following the news. Today’s push puts us right back at those levels although Cisco was trading above $24 in pre-market trading. The point is, despite the good earnings news, the stock is basically flat from where it was a month ago despite Cisco reporting its first $10 billion quarter.

There appears to be strength in the stock because Wall Street overlooked the fact that the company guided revenue for the current quarter a little lower. Cisco said revenues will grow by 8% from a year ago, which puts revenue at $10.3 billion. Wall Street had been expecting revenue of $10.4 billion. For the following quarter, which ends in January, Cisco predicted revenue growth of 8.5%, which comes out to $10.7 billion. The Street had been looking for $10.8 billion.

Cisco is a solid company and their CEO is one of the best in the business. However, when it comes to taking an option position I’d rather look elsewhere.

Rick Rouse
Rick@OptionsMentoring.com

The market went on another wild ride Monday with the Dow posting a triple-digit loss to start the session. The financials were once again an area of concern as many of them traded lower for the day. The market staged an afternoon comeback when oil suddenly dropped $4 a barrel and briefly traded below $120. News that tropical storm Edouard would not mount a serious threat to the oil and natural gas facilities in the Gulf of Mexico was seen as a relief and the fact that Obama was talking about a plan for the U.S. to lessen our reliance on imported oil within 10 years served as two key components to the decline in oil.

The gyration of the market took us out of a couple of trades and both were profitable. Research In Motion (RIMM, $116.43, down $3.72) opened the morning slightly higher but it was all downhill after that, literally. The stock fell below $118 in the last hour of trading and like Apollo Creed, the only thing that saved it was the closing bell. We got into the September 140 calls (RULIH, $1.50, down $0.50) at $1.85 and they immediately jumped up to $2.70. We then set a $2.00 stop which was actually hit on Friday. The trade was good for 8% but let’s see what the Fed does before going long again.

Qualcomm (QCOM, $52.87, down $2.60) lost its chief operating officer, Sanjay Jha, who is leaving the company to become the head of Motorola’s handset division. The 5% drop in the stock tells you what this dude meant to Qualcomm and was a big score for Motorola. The October 50 calls (AAOJJ, $5.25, down $1.30) closed at $6.55 on Friday and opened at $6.25. We got into the position at $2.05 and set a stop at $6.15 which was hit on Qualcomm’s way down. The trade netted us a 200% return.

We are setting up for an exciting week with the Fed announcment on Tuesday and corporate earnings still coming in. Cisco Systems ($21.99, unchanged), News Corp. (NWS, $14.57, up $0.17) and Procter & Gamble (PG, $65.82, up $0.87) report earnings on Tuesday.

Rick Rouse
Rick@OptionsMentoring.com

Walt Disney (DIS, $31.27, up $0.35) reports earnings after the closing bell today and all signs are pointing towards a good quarter. Disney’s profit jumped 18% to $1.1 billion, or $0.58 a share when they reported last time out. This time around Wall Street is expecting a profit of $0.61 a share on revenue of $9.1 billion for the quarter.

Disney has a solid film and broadcasting division producing such hits as National Treasure: Book of Secrets, Enchanted and its Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour. The studio entertainment division saw its revenue jump 61% to $377 million with the success of these films and analysts expect growth to continue.

The company also owns theme parks, ABC television, ESPN, and radio stations, which should also contribute to the bottom line. Options traders are targeting the August 32.50 calls (DISHZ, $0.60, up $0.15) and the August 30 puts (DISTF, $0.60, down $0.15). Volume in the puts is nearly double the action in the calls as 13,000 contracts have traded thus far.

Rick Rouse
Rick@OptionsMentoring.com

Amgen (AMGN, $62.28, up $1.80) continued its recent hot streak today following Monday’s 12% gain on better-than-expected quarterly earnings and a raised 2008 forecast. There was a lot of action last Friday as traders were positioning for the company’s earnings report. The biggest news, however, wasn’t the company’s numbers so to speak. Late Friday, the company also reported Phase 3 clinical trial results that showed its bone drug, Denosumab, reduced the risk of bone fracture in post-menopausal women.

Amgen reported earnings per share of $1.14 on revenue of $3.76 billion. Net income fell nearly 8% to $941 million but the decline was smaller than expected and overlooked when the company raised its full year earnings forecast. Amgen provided revenue guidance for 2008 in a range of $14.6-$14.9 billion versus Wall Street’s expectations of $14.4 billion. Earnings are expected to be in the $4.25 to $4.45 range versus $4.19 a share which is what analysts were expecting.

The company is counting on Denosumab as its next biggest money-maker over the next few years with analysts predicting sales of $1.7 billion by 2012. The positive results from its latest study could push those numbers higher. As usual, the parade of upgrades on Monday should have been expected. Three brokerage firm raised the stock to a “Buy” rating while another initiated coverage with the same rating. Their price targets were anywhere from $70-$80 a share but the drug will still need FDA approval.

The August 60 calls (YAAHL, $3.15, up $0.75) have provided some stellar gains for those of you who may have bought them on Friday or Monday. However, there was heavy volume in the October 65 calls (YAAJM, $2.85, up $0.70) as nearly 18,000 contracts traded hands. Also noteworthy is the open interest in the October 50 puts which could suggest that option traders are looking to protective their positions as well should Amgen stumble from here.

Rick Rouse
Rick@OptionsMentoring.com