It feels like we just finished earnings season and already we’re gearing up for another one! As you know, Alcoa Inc. (AA) is always the first to report earnings, and it did not disappoint when it reported its fourth-quarter and full-year results after the closing bell last night.
According to management, the nation’s top aluminum producer had its best year since 2008. Alcoa posted net income of $159 million, or $0.11 per share; this time last year Alcoa had posted a net loss of $2.3 billion, or $2.19 per share. Fourth-quarter revenue was $6.38 billion, a 14% increase over the year ago quarter, and above analysts’ estimates of $5.99 billion. Adjusted earnings were $0.33 per share, which trounced the consensus estimate of $0.25 EPS by 32%. Looking ahead to FY 2015, Alcoa expects aluminum demand to continue to rise at 7%, the same pace as last year. The analyst community has also revised its EPS projections for the next several quarters following these unexpectedly strong results.
As shown by Alcoa’s earnings report, this is the time for companies to put it all on the table and give investors real numbers (rather than speculation) to rely on. I’m expecting that this fourth-quarter season will be a big help in giving the market the direction it needs, and although the stronger dollar is going to weigh on multinational sales, I think that we are going to see some absolutely fantastic positive earnings surprises.
Analysts have lately been a bit cautious, revising back their estimates for S&P 500 earnings growth—currently coming in at about 1.1% average growth, down from the 8.4% that was expected just three months ago. The Energy sector in particular is expected to post the largest decline in earnings for the quarter. Analysts also expect just 1.1% annual sales growth for Q4—below its earlier estimate of 3.8% top-line growth.
In this type of environment, stock selection is critical. Making certain that you hold companies with the right sort of fundamentals—positive earnings revisions and surprises, increasing sales numbers, expanding operating margins, free cash flow, earnings growth, earnings momentum and return on equity—is the first step in making certain that your portfolio will be able to thrive in the New Year.
So before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This tool lets you analyze nearly 5,000 stocks on these eight fundamental criteria (plus a special quantitative variable that measures buying pressure—that’s the virtual cherry on top of my formula). You can even save your own personal stock portfolios to it, and check on them anytime.
As for Alcoa Inc., it is currently an A-rated Strong Buy in Portfolio Grader. In fact, I consider it one of my top alternative plays on the auto market. So while AA shares didn’t quite take off after earnings today, I have high hopes for the aluminum producer in 2015.