Tuesday, April 10, 2007

No Plays For Today

I wrote earlier in the week suggesting that investors should wait to see how the market will react to single-digit earnings growth before exploring any earnings plays. I stand firm on this recommendation with the companies reporting earnings today.

The two big releases are Progressive (PGR) and Alcoa (AA). Earnings Whispers predicts that AA will meet analyst expectations of $.77 a share, but my Bloomberg research, with a larger collection of analyst predictions, sites a mean expectation of $.78 a share. If the fundamentals Earnings Whispers uses to derive their estimate are correct, and the release is inline according the Earnings Whispers, the number will still miss according to a larger sample of investors. Alcoa has also dropped three out of the last five quarters after their earnings release signifying that the stock is not exactly an earnings champ. Alcoa is also trading near a 52 week high creating a resistance barrier that would require an adequate beat to break (or at least a beat that would quantify Aloca's above-industry-standard P/E ratio). Too much has to go right here for the longs to win on this one.

Progressive is a bit more attractive because of the stock's recent success during earnings season. The stock has beat the street the last four quarters due to a relatively low amount of natural disasters (hurricanes, etc.). These disasters have remained relatively low the last couple months, so it may be safe to assume the PGR will make it five straight. PGR is also trading near its 52 week low allowing investors to drive the stock up to a more appropriate price level if the numbers are good. All of this, coupled with an appropriate P/E, gives PGR a better chance to move positively tomorrow that AA.

With all of this said, I am still sitting on the sidelines today. Good luck all.


Brian Restuccia said...

Hope you're wrong on Alcoa. I'll dabble in Progressive though too.
Either way, whenever Alcoa reports they usually edge in the opposite direction of their open by the end of the day, so hopefully I can cut down on loses that way if they disappoint.

rmacguidwin said...

Alcoa is looking good afterhours. According to my sources, they beat by a penny. I would probably block trade this bad boy, but don't waste more than three trades on the sale.