Is Alcoa a Great Buy Opportunity Today?

While my crystal ball has been packed away for weeks now, I just might bust it out and shine it off this afternoon, ahead of Alcoa AA kicking off the summer earning season at the close today. Whether the reported numbers beat or miss analysts' estimates, they will also be compared against last year's numbers for the same period, which were a profit of 10 cents per share on revenues of $5.19 billion. We'll have to wait for Monday to see if Alcoa has accomplished the estimated 270% increase in EPS and a 121.8% rise in revenues on a year-over-year basis. Here's how the company's reported EPS has stacked up against analyst estimates in the past: Jun 2010: Est $0.12, Actual $0.13.
Sep 2010: Est $0.05, Actual $0.09.
Dec 2010: Est $0.19, Actual $0.21.
Mar 2011: Est $0.27, Actual $0.28.
Wall Street expects a positive EPS reading of 35 cents per share and revenues of $6.32 billion. Alcoa tends to sandbag their numbers a little, so some traders might be expecting at least a tie, if not a decent beat against those numbers. If so, one would expect to see Alcoa creeping up today. Yet, Alcoa is down today. You can't even blame the dip on the down market day — Alcoa is down a higher percentage than the major indices on the day. Has Alcoa already leaked bad news to traders, who are dropping the stock? Or is today shaping up as an excellent trading opportunity for bulls? Alcoa Inc. is a global producer of aluminum. It is mainly engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined. It is actively involved in a range of industries, including technology, mining, smelting and recycling. When it does well, there are reverberations throughout the entire economy. While these are not cause-effect relationships, they do often trend together. Other mining companies tend to do well (as market conditions are likely favorable for all mining-construction commodities). Construction stocks benefit. Banks can benefit from increased construction lending. ACTION ITEMS:

Bullish:
Traders who believe that Alcoa will beat earnings Monday might want to consider the following trades:

• A good report may help push up other metals and industrial names such as Freeport Mc-Moran FCX, Rio Tinto RIO, AK Steel AKS, and Vale VALE among others.

• Good numbers may be indicative of the strength of the global economy and rising demand.

• Expect the market to react in some fashion to this report given that it is the first major earnings release of earnings season. Look at some overall indicators, like SPY.

Bearish:
Traders who believe that Alcoa's numbers may disappoint may consider alternate positions:

• Just as a good report would likely boost cyclical names, poor numbers may cause concern on Wall Street about the strength of the recovery.

• Defensive sectors could see a boost if the numbers are really poor, including beverage plays like Coke COKE.

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