One stock that fits the bill is Del Monte Foods Company (NYSE: DLM), which reports fiscal Q4 earnings on Thursday. It's certainly not going to get a lot of play on CNBC or the financial blogs. It won't shove BP plc (NYSE: BP) or the euro or Apple Inc.'s (NASDAQ: AAPL) new iPhone off the front page. But that's fine with us. We like stocks that fly under the radar.
Here's what we really like about DLM: It typically beats the consensus earnings estimate … by a lot. Excluding September 2009 (when the actual number beat by 650%), the actual earnings number has bested the consensus by more than 50% on average over the past five quarters.
More importantly, DLM performs very well after these earnings beats. Over the past four quarters, the stock has gained an average of 6.8% the day following each earnings report. Now that doesn't sound so boring, does it?
Currently, the shares are bouncing around just above the $14 level, which has provided solid support for the past three months. The 100-day moving average is also rising into this region, which could add another layer of support.
Sentiment toward DLM is also lending a hand. We're seeing plenty of skepticism in the form of a spiking put/call ratio, rising short interest, and just four "buy" ratings from 11 covering analysts. That tells us that there's plenty of buying power in reserve to boost DLM off the $14 level following another earnings beat.
To build in another measure of safety, we suggest playing the in-the-money DLM June 12.50 Call(DLM 100619C00012500). The premium consists of nearly 90% intrinsic value (the amount the stock price exceeds the strike price), so the erosion of time value is not a concern. We prefer a June option since the expected move should happen within a few days of the earnings report at most. No sense in buying more time than you need with an option.
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