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Alcoa Earnings Beat Sparks Hope; Buy These 5 Material Stocks
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Alcoa, Inc. (AA - Free Report) has kick-started the second quarter earnings season in style. Alcoa's results are a closely followed event as it is often considered a barometer of the economy providing a glimpse into demand trends for aluminium, which is used across a wide gamut of industries.
Alcoa Trumps Estimates in Q2
Despite depressed aluminium prices, productivity gains enabled Alcoa to report numbers ahead of expectations. Barring one-time items, Alcoa’s earnings came in at 15 cents per share, striding ahead of the Zacks Consensus Estimate of 9 cents. However, on a year-over-year basis, this New York-based aluminum giant’s earnings plunged 21% as lower prices continued to dent its sales and profits. Nevertheless, the company recorded productivity gains of $375 million across all segments in the quarter.
Aluminum prices remained subdued given the perennial problem of oversupply in the market. Alcoa’s realized aluminum prices declined around 15% year over year, but it logged a 3% improvement on a sequential basis.
The Road Ahead for Alcoa
Alcoa is on track to move down the cost curve through capacity curtailments. The company is also splitting into two independent, publicly traded companies that will be completed in the back half of the year.
Alcoa expects a global aluminum deficit of around 775,000 metric tons and a global alumina deficit of 1.5 million metric tons this year. The company reaffirmed its global aluminum demand growth forecast of 5% for 2016. Alcoa remains optimistic about its forecast of demand outpacing supply in 2016. This should bode well for future aluminum prices.
Alcoa also sees an improvement in the aerospace market in the back half of 2016 and a strong 2017 based on the ramp-up of new platforms. Global automotive production growth is projected at 1-4% for 2016 including 1-4% growth in North America while the building and construction market is expected to log 4-6% global sales growth. For the packaging market, Alcoa continues to expect global sales growth of 1% to 3% this year.
What Alcoa Results Mean for the Basic Material Sector
Alcoa’s positive outlook for the automotive and construction sectors also bodes well for the chemical and steel industries. As it is, gold and silver are major movers this year, thanks to the slowdown in China, Brexit induced volatility and Fed’s dovish stance.
A preview of second-quarter earnings for the overall Basic Material sector reveals a projected decline of 16.4%, following a 15.9% year-over-year plunge in the first quarter. However, there is a silver lining with the sector expected to enter the positive territory in the back half of the year with 4.4% and 15.6% growth in the third and fourth quarters, respectively. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
Thus, the earnings beat from Alcoa and improved outlook for the basic materials sector in the latter half of the year make it a good space to invest in. It would be a prudent move to zero in on some basic materials stocks that are set to deliver beats this earnings season.
How to Pick the Right Stocks?
We have screened stocks from the basic materials sector that have the potent combination of a solid Zacks Rank and a good VGM Score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential. Moreover, these stocks are experiencing positive estimate revisions ahead of their earnings release.
Barrick Gold Corporation
Based in Toronto, Canada, Barrick Gold is the largest gold mining company in the world. The company has many advanced exploration and development projects located across five continents.
Barrick Gold currently carries a Zacks Rank #2 and a VGM Score of A. Barrick has seen its shares shoot up roughly 198.65% year to date. The Zacks Consensus Estimate has moved north 8% over the past 60 days for the second quarter.
The company will report its results on Jul 27. The Zacks Consensus Estimate for the quarter is pegged at 14 cents, reflecting an impressive 180% year-over-year growth. The company delivered an earnings surprise of 10% in the last quarter and has an average positive earnings surprise of 26.91% in the last four quarters.
AK Steel Holding Corporation
Headquartered in West Chester, OH, AK Steel is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products.
AK Steel Holding has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 150.54% year to date.
The bottom-line estimate for the second quarter has narrowed over the last 30 days from a loss of 12 cents to a loss of 8 cents. The company beat the Zacks Consensus Estimate last quarter by 46.67% and has an impressive four-quarter trailing surprise of 127.34%. It is expected to report its results before the market opens on Jul 26.
Based in Charlotte, NC, Nucor manufactures and sells steel and steel products in the United States and internationally.
Shares of this Zacks Rank #2 stock with a VGM Score of A have gained 35.14% year to date. The Zacks Consensus Estimate has moved up 23% over the past 30 days for the second quarter. The company will report its results before the market opens on Jul 28.
The Zacks Consensus Estimate for the quarter is currently at 70 cents, reflecting 79.85% year-over-year growth. The company has an average positive earnings surprise of 47.87% in the last four quarters.
Headquartered in Northfield, IL, Stepan Company produces and sells specialty and intermediate chemicals to manufacturers for use in various end products worldwide.
Stepan Company has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 20.91% year to date. The Zacks Consensus Estimate has edged up 1% over the past 30 days for the second quarter. The company will report second-quarter results on Jul 20.
The Zacks Consensus Estimate for the quarter is currently at $1.17, reflecting 28.57% year-over-year growth. The company has an average positive earnings surprise of 18.32% in the last four quarters and delivered a 26.47% beat in the last quarter.
Headquartered in Fort Wayne, IN, Steel Dynamics manufactures and sells steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the U.S. and internationally.
Steel Dynamics has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 50.59% year to date. The Zacks Consensus Estimate has moved up 27% over the past 30 days for the second quarter.
The company will report second-quarter results on Jul 18. The Zacks Consensus Estimate for the quarter is currently at 56 cents, reflecting an impressive 154.55% year-over-year growth. The company has an average positive earnings surprise of 11.4% in the last four quarters and delivered an 8.33% beat in the last quarter.
In a Nutshell
At this juncture, these possible winners backed by a solid Zacks Rank, VGM Score and positive earnings revision estimates could be a great way to play the second-quarter earnings season.
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Alcoa Earnings Beat Sparks Hope; Buy These 5 Material Stocks
Alcoa, Inc. (AA - Free Report) has kick-started the second quarter earnings season in style. Alcoa's results are a closely followed event as it is often considered a barometer of the economy providing a glimpse into demand trends for aluminium, which is used across a wide gamut of industries.
Alcoa Trumps Estimates in Q2
Despite depressed aluminium prices, productivity gains enabled Alcoa to report numbers ahead of expectations. Barring one-time items, Alcoa’s earnings came in at 15 cents per share, striding ahead of the Zacks Consensus Estimate of 9 cents. However, on a year-over-year basis, this New York-based aluminum giant’s earnings plunged 21% as lower prices continued to dent its sales and profits. Nevertheless, the company recorded productivity gains of $375 million across all segments in the quarter.
Aluminum prices remained subdued given the perennial problem of oversupply in the market. Alcoa’s realized aluminum prices declined around 15% year over year, but it logged a 3% improvement on a sequential basis.
The Road Ahead for Alcoa
Alcoa is on track to move down the cost curve through capacity curtailments. The company is also splitting into two independent, publicly traded companies that will be completed in the back half of the year.
Alcoa expects a global aluminum deficit of around 775,000 metric tons and a global alumina deficit of 1.5 million metric tons this year. The company reaffirmed its global aluminum demand growth forecast of 5% for 2016. Alcoa remains optimistic about its forecast of demand outpacing supply in 2016. This should bode well for future aluminum prices.
Alcoa also sees an improvement in the aerospace market in the back half of 2016 and a strong 2017 based on the ramp-up of new platforms. Global automotive production growth is projected at 1-4% for 2016 including 1-4% growth in North America while the building and construction market is expected to log 4-6% global sales growth. For the packaging market, Alcoa continues to expect global sales growth of 1% to 3% this year.
What Alcoa Results Mean for the Basic Material Sector
Alcoa’s positive outlook for the automotive and construction sectors also bodes well for the chemical and steel industries. As it is, gold and silver are major movers this year, thanks to the slowdown in China, Brexit induced volatility and Fed’s dovish stance.
A preview of second-quarter earnings for the overall Basic Material sector reveals a projected decline of 16.4%, following a 15.9% year-over-year plunge in the first quarter. However, there is a silver lining with the sector expected to enter the positive territory in the back half of the year with 4.4% and 15.6% growth in the third and fourth quarters, respectively. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
Thus, the earnings beat from Alcoa and improved outlook for the basic materials sector in the latter half of the year make it a good space to invest in. It would be a prudent move to zero in on some basic materials stocks that are set to deliver beats this earnings season.
How to Pick the Right Stocks?
We have screened stocks from the basic materials sector that have the potent combination of a solid Zacks Rank and a good VGM Score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential. Moreover, these stocks are experiencing positive estimate revisions ahead of their earnings release.
Barrick Gold Corporation
Based in Toronto, Canada, Barrick Gold is the largest gold mining company in the world. The company has many advanced exploration and development projects located across five continents.
Barrick Gold currently carries a Zacks Rank #2 and a VGM Score of A. Barrick has seen its shares shoot up roughly 198.65% year to date. The Zacks Consensus Estimate has moved north 8% over the past 60 days for the second quarter.
The company will report its results on Jul 27. The Zacks Consensus Estimate for the quarter is pegged at 14 cents, reflecting an impressive 180% year-over-year growth. The company delivered an earnings surprise of 10% in the last quarter and has an average positive earnings surprise of 26.91% in the last four quarters.
AK Steel Holding Corporation
Headquartered in West Chester, OH, AK Steel is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products.
AK Steel Holding has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 150.54% year to date.
The bottom-line estimate for the second quarter has narrowed over the last 30 days from a loss of 12 cents to a loss of 8 cents. The company beat the Zacks Consensus Estimate last quarter by 46.67% and has an impressive four-quarter trailing surprise of 127.34%. It is expected to report its results before the market opens on Jul 26.
Nucor Corporation (NUE - Free Report)
Based in Charlotte, NC, Nucor manufactures and sells steel and steel products in the United States and internationally.
Shares of this Zacks Rank #2 stock with a VGM Score of A have gained 35.14% year to date. The Zacks Consensus Estimate has moved up 23% over the past 30 days for the second quarter. The company will report its results before the market opens on Jul 28.
The Zacks Consensus Estimate for the quarter is currently at 70 cents, reflecting 79.85% year-over-year growth. The company has an average positive earnings surprise of 47.87% in the last four quarters.
Stepan Company (SCL - Free Report)
Headquartered in Northfield, IL, Stepan Company produces and sells specialty and intermediate chemicals to manufacturers for use in various end products worldwide.
Stepan Company has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 20.91% year to date. The Zacks Consensus Estimate has edged up 1% over the past 30 days for the second quarter. The company will report second-quarter results on Jul 20.
The Zacks Consensus Estimate for the quarter is currently at $1.17, reflecting 28.57% year-over-year growth. The company has an average positive earnings surprise of 18.32% in the last four quarters and delivered a 26.47% beat in the last quarter.
Steel Dynamics Inc. (STLD - Free Report)
Headquartered in Fort Wayne, IN, Steel Dynamics manufactures and sells steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the U.S. and internationally.
Steel Dynamics has a Zacks Rank #2 and a VGM Score of A. The stock price has gained 50.59% year to date. The Zacks Consensus Estimate has moved up 27% over the past 30 days for the second quarter.
The company will report second-quarter results on Jul 18. The Zacks Consensus Estimate for the quarter is currently at 56 cents, reflecting an impressive 154.55% year-over-year growth. The company has an average positive earnings surprise of 11.4% in the last four quarters and delivered an 8.33% beat in the last quarter.
In a Nutshell
At this juncture, these possible winners backed by a solid Zacks Rank, VGM Score and positive earnings revision estimates could be a great way to play the second-quarter earnings season.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>