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. This marks the official start of the season and that date is tomorrow after the market close.
This is the time for companies to put it all on the table and give investors real numbers (rather than speculation) to rely on. Unfortunately, this is shaping up to be one of the worst earnings seasons in years.
As I’ve explained before, the strong U.S. dollar is putting pressure on overseas profits. So for the first time in a few years, the S&P500 is expected to post a year-on-year decline in both sales and earnings. This is going to be a harsh wake-up call for some investors, so I expect first-quarter earnings season to spark a flight to quality.
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 2015.
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 cherry on top of my formula). You can even save your own personal stock portfolios to it, and check on them anytime.
Now, as a side note, I recently downgraded Alcoa in my Portfolio Grader tool to a C, a hold. So I’m not expecting that the company will be able to meet the expectations that analysts have placed. But check back here tomorrow for the results from Alcoa’s earnings and what to expect next from the market.