We’re just a few hours into earnings season and it’s looking good.
For simplicity’s sake, let’s look at stocks in the S&P 500, four of which have reported earnings. All four beat earnings estimates. All four beat sales estimates. All four showed growth over the last year.
| EPS Growth | EPS Surprise | Sales Growth | Sales Surprise | |
|---|---|---|---|---|
| Alcoa (AA) | Positive* | 14.04% | 22.22% | 3.26% |
| CSX Corp (CSX) | 48.81% | 10.08% | 169.59% | 2.94% |
| Novellus (NVLS) | Positive* | 9.27% | 21.88% | 1.44% |
| Fastenal (FAST) | 62.07% | 7.06% | 20.28% | 0.46% |
*No percentage because company switched from a loss to a profit
We’re not going to go crazy here. It’s silly to get too ahead of ourselves on four out of 5,000 earnings reports. But we’re looking for important indicators of the economy and what the market will do as a result.
Alcoa’s earnings aren’t important just because they’re first. As an aluminum producer, Alcoa’s customers come from a wide range of industries, giving it an inside line on whether those industries are expanding or contracting, thriving or dying.
So far, the answer is thriving.
Alcoa beat earnings and swung from a loss of $0.26 to a gain of $0.13 per share over last year. It wasn’t easy, either, considering that aluminum prices are down and energy prices are up. That narrows Alcoa’s margins… so they made up the difference on volume.
Looking forward, Alcoa has said it sees strength in the aerospace (good for our picks GEOY and AVAV), automotive, gas turbine and building construction sectors (good for our pick RAVN).
CSX Corp, the third-largest rail shipper in the nation, also reported. When economic activity is humming along, more goods get shipped around the country. It’s as simple as that.
Overall revenue leapt 169% over last year and CSX reported that merchandise traffic rose 14%, automotive traffic rose 63%, metal rose 44%, chemical rose 10% and coal rose 7%.
Still questioning the recovery?
Just a reminder, we won’t be trading any of these companies. They’re too big. It’s been shown that post-earnings drift affects small companies more than large ones so we can gain a better edge trading small caps.
Also, we typically wait about 10 days after the earnings surprise to buy in, so we’re in a bit of a holding pattern for now.
I’ll keep you updated on any major events in earnings until it comes time to buy.
Ahead of the tape,
Matthew Weinschenk