SOME QUICK THOUGHTS ON THE ALCOA QUARTER
Everyone loves to focus on Alcoa and make a big deal of their earnings report due to the fact that they lead off earnings season. This is a classic Wall Street mistake. Alcoa is a debt bloated, highly inefficient company with very lumpy earnings. Their earnings are not a reliable barometer of earnings growth. This is a company that consistently reports cash charges and has a notoriously confusing balance sheet. Regardless, they consistently miss earnings (missed 5 of the last 7) and rarely provide any guidance or outlook that gives investors an idea of the actual economic environment. In other words, ignore the AA earnings report. The true feel for this earnings season won’t come until early next week. Ignore the pundits between now and then.
You are getting biased in your opinions. Remember what you said last quarter?
“… the AA quarter is a microcosm of what we can expect from the entire S&P 500.”
You’re conveniently leaving out the portion of the sentence before that. I also said:
“Of course, the ER isn’t a predictor of specific stocks, but the AA quarter is a microcosm of what we can expect from the entire S&P 500″.
The fact that Alcoa beat earnings last quarter was a pure coincidence with the likely outlook for earnings. Anyone who covers AA earnings knows they are very lumpy, unpredictable and never a great barometer for earnings season. I should never have implied such last quarter.
If I’d wanted to write something really bullish and biased I would have said that AA’s revenues were out of the park and that they now expect 10% growth in China and 5% ex-China which is remarkably bullish. I simply said to ignore them which is the equivalent of taking no position. You’re implying some MSM bullish bias which is not the case.
You can see how this looks like you’re cherry picking though, right?
Of course. But I think the implication that this is some MSM bullish fluff piece is wrong. Like I said above, if I’d wanted to write a bullish fluff piece I would have talked about the revenues and the conference call comments.
The moral of the story is to ignore what the MSM says about AA and their lead-off report.
TPC,
It’s an awfully large company to ignore, and a market leader in aluminum. The two things that strike me 1) the price of aluminum went up a lot but their top sales didn’t go up proportionately and 2) the inventory of aluminum is very high and looks like a manic imbalance. I would have a difficult time arguing for a return to sub $5 but I also can’t see the stock going up much. It had its run and it’s over. I happen to believe that the S&P will continue towards just shy of 1200, mainly because there’s so much money that plays the SPY, but most companies will be “Alcoa-like” in that their stocks have performed well for 9 months and the run is over. We will likely tread water until end of Feb and then begin a slow sell off as each confirming bit of news will describe an economy that’s very stuck and very dependent on government money. Do I expect a crash? Not until 2011 or 2012 at the earliest, but I also think that you have to trade the ranges now for the next 18 months or even play intraday scalps. It’s no fun anymore, frankly, but that’s what the government was hoping for: “stabilization” and lots of pressure on money managers to get out of cash. It worked, but it’s totally bogus.
That sounds pretty accurate to me. My thing with AA is that their earnings are filled with charges, currency adjustments, and other details that don’t make the comps clean. I generally ignore their report.
I think we will see a moderate sell-off at some point in Feb as the earnings become fully priced in and investors begin to sell the news. We’re not there yet in my opinion.
Interesting TPC…My timing is similar to yours but with a slightly earlier time frame. Probably top within the next 3-4 trading days so it is likely that we may continue to power up and fade back into OPEX then have a 10-15% sell off to get the bears excited again. Most likely we may ping the 1000 and bounce hard..Shake off weak bulls and kills stubborn bears..Not unlike July or Oct sell-offs. Incidentally your calls for problems in H2 coincide with MS’s chart on Secular Bear Market in which the rally from the low last roughly 17 months or so before we roll over for 25-30% from the turn…
TPC—You might consider viewing Alcoa as you would view a Railroad.
When Railroads are not moving goods its a sign of Economic weakness.
When Alcoa is not moving sheet metal its a sign of Economic weakness.
This is the story—that can’t be denied.
Earnings what Earnings–they have an accountant that uses an abacus.
yes, they are very economically sensitive, but holy christ – their balance sheet is a mess.