5 Earnings Studs & 5 Duds

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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

Hurco Companies (NASDAQ: HURC ) is an industrial technology company that makes computerized machine tools for the metal working industry. This stock is just popping onto my screens and is benefiting from some strong momentum going into the earnings season. This bodes very well for its performance when the company reports.

Silver Standard Resources Inc. (NASDAQ: SSRI ) is a mining company that digs not only for its namesake, silver, but also for gold, tin, zinc, lead and copper. This company operates mines all over the world and has an especially large concentration of them in Latin America. Like other mining companies, SSRI is benefiting from increasing commodity prices, and these windfall profits should be reflected in the company's results for the first quarter. This is a perfect time to buy this stock ahead of its earnings announcement in the beginning of May.

Georgia Gulf Corp. (NYSE: GGC ) develops industrial and aromatic chemicals. Many of its products are used in home construction, particularly in windows, doors and patios. The stock is breaking all kinds of highs and is surging toward its earnings announcement, which will come at the beginning of May.

Harry Winston Diamond Corp. (NYSE: HWD ) is a Canadian diamond company that operates a number of retail stores throughout the United States, Europe and East Asia. The stock has been on quite a run over the past month, and expectations for the current quarter are high. Pick up shares before this company announces on April 22.

TGC Industries Inc. (NASDAQ: TGE ) conducts surveys of oil fields and provides seismic data for oil and gas companies. The company operates in the continental United States and Canada. The oil and gas industry has really been heating up in the pre-announcement season, and I'm looking for several oil and gas plays to pop when they release results. This stock has been correcting some, so now would be a perfect time to pick up shares at a discounted price before its announcement on May 2.

5 Earnings Losers

The stocks you want to avoid this earnings season are ones that have very poor earnings surprise histories and anemic sales growth. You see what happened to Alcoa when it missed sales estimates. Investors punish stocks that disappoint, and they show no mercy. Here are five stocks you'll definitely want to stay away from this earnings season:

Stock Earnings
Surprises Sales
Growth TOTAL
GRADE Lawson Products (NASDAQ: LAWS ) F C C Peoples Bancorp Inc. (NASDAQ: PEBO ) F F D Rochester Medical (NASDAQ: ROCM ) F C D SeaBright Holdings Inc (NYSE: SBX ) F D D Hallmark Financial (NASDAQ: HALL ) F C FA A A Georgia Gulf Corp. (GGC) A A A Harry Winston Diamond Corp. (HWD) A A B TGC Industries Inc. (TGE) A A A

Hurco Cos. (HURC) is an industrial technology company that makes computerized machine tools for the metal working industry. This stock is just popping onto my screens and is benefiting from some strong momentum going into the earnings season. This bodes very well for its performance when the company reports.

Silver Standard Resources Inc. (SSRI) is a mining company that digs not only for its namesake, silver, but also for gold, tin, zinc, lead and copper. This company operates mines all over the world and has an especially large concentration of them in Latin America. Like other mining companies, SSRI is benefiting from increasing commodity prices, and these windfall profits should be reflected in the company's results for the first quarter. This is a perfect time to buy this stock ahead of its earnings announcement in the beginning of May.

Georgia Gulf Corp. (GGC) develops industrial and aromatic chemicals. Many of its products are used in home construction, particularly in windows, doors and patios. The stock is breaking all kinds of highs and is surging towards its earnings announcement, which will come at the beginning of May.

Harry Winston Diamond Corp. (HWD) is a Canadian diamond company that operates a number of retail stores throughout the United States, Europe and East Asia. The stock has been on quite a run over the past month, and expectations for the current quarter are high. Pick up shares before this company announces on Apr. 22.

TGC Industries Inc. (TGE) conducts surveys of oil fields and provides seismic data for oil and gas companies. The company operates in the continental United States and Canada. The oil and gas industry has really been heating up in the pre-announcement season, and I'm looking for several oil and gas plays to pop when they release results. This stock has been correcting some before its announcement on May 2, so now would be a perfect time to pick up shares at a discounted price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: GGC , HURC , HWD , SSRI , TGE

Louis Navellier

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