Alcoa Inc.’s (NYSE: AA) earnings report shows that it’s really important for investors to see a well-rounded financial report. Alcoa met earnings estimates but missed on sales, and investors punished the stock severely with a more than 6% sell-off on Tuesday.
Earnings Season Starts With Mixed Results
Alcoa’s report was quite mixed. The company posted strong earnings gains and swung to a profit in the first part of this year. Earnings of 27 cents per share hit analysts’ expectations on the nose. However, the stock fell due to disappointing sales results. While sales increased in the quarter to $5.96 billion, AA missed estimates of $6.2 billion.
Wall Street took the news pretty hard. However, my Portfolio Grader accurately predicted Alcoa’s result to a “T.” If you look at Alcoa’s stock report card, the company gets a “D” in sales growth, a “B” in earnings surprises, and an “A” in earnings revision. These grades mirror exactly what Alcoa actually reported — strong earnings results but disappointing sales. Overall, the stock gets a “C,” which according to my grade book is a “hold.” This would have signaled to investors that they should not be buying Alcoa at this time.
Is Alcoa a Sign of Things to Come?
One company missing expectations isn’t a big deal. It happens all the time. But investors look for AA to set the pace and tone of earnings season, and kicking the season off like this can dampen the mood. On the other hand, starting off with low expectations this way could also mean bigger gains for companies with strong numbers as investors rush into companies that surprise Wall Street.
The first thing that I look for when analyzing a stock is a history of strong earnings surprises. Investors love being pleasantly surprised by profits, and they’ll bid up stocks that post earnings surprises. Next, I look at sales growth, because even if a company is increasing earnings, investors will flee if sales growth is slow.
Earnings Season Winners
The following chart shows some of the best stocks for the current earnings season. All of the stocks have excellent predicted earnings results and strong sales expectations.
| Stock | Earnings Surprises |
Sales Growth |
Total Grade |
| Hurco Cos. (NASDAQ: HURC) | A | A | A |
| Silver Standard Resources (NASDAQ: SSRI) | A | A | A |
| Georgia Gulf Corp. (NYSE: GGC) | A | A | A |
| Harry Winston Diamond (NYSE: HWD) | A | A | B |
| TGC Industries Inc. (NASDAQ: TGE) | A | A | A |
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