Percentage by Which Alcoa Earnings Missed Estimates: -37.5
(Updates to reflect Alcoa earnings.) Traditionally the first major U.S. company to report results each quarter, aluminum giant Alcoa (AA) disappointed investors on Oct. 11 with third quarter earnings-per-share that were 37.5 percent below the estimates of analysts surveyed by Bloomberg. Analysts and investors had already soured on the stock amid concerns about the state of the global economy. Earnings estimates dropped 18 percent in the past four weeks, and Alcoa shares dropped 41 percent in the third quarter. When it comes to Alcoa's stock, investors have "priced in a global recession," says Rob Lutts, president of Cabot Money Management.
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Why It Matters
Concerns about Alcoa's business mirror worries about corporate profits generally, Lutts says, with many investors skeptical about analysts' estimates that S&P 500 earnings will rise 11.5 percent next year. "We're at a critical point in trying to gauge to what extent the world economy is slowing," says Robert Bacarella, president of Monetta Mutual Funds. Alcoa Chairman and Chief Executive Officer Klaus Kleinfeld said in a statement: "With the exception of Europe, we saw growth in our end markets, though at a slower rate than in the first half, as confidence in the global recovery faded."
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What It Means for Your Portfolio
Bacarella advises caution for anyone buying stocks during earnings season. Use reports to identify promising companies, he says, but avoid buying when stocks rally initially on good news, he says. As broader economic issues get worked out, especially Europe's debt issues, the market should provide better buying opportunities when these stocks dip again, he says. "This is a time to start nibbling at good companies."
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