October 8, 2014

Today is the beginning of a very important month of earnings. We’ll hear from a number of big-named companies that have the potential to move the marketand your portfolio.

That’s why I’m posting this special Market 360 earnings series (Note: Never miss an update by signing up for the free email series here ). If you sign up, throughout October, you’ll hear from me at least twice a week when I’ll help you look beyond the headlines and focus on the facts. I’ll help you separate the tailwinds from the headwinds, opportunity from disaster and fact from speculation. You’ll know exactly what’s coming, which stocks to avoid and which ones are excellent choices for new money.

Q3 Earnings Overview

After a red-hot second-quarter earnings season with a string of better-than-expected results, look for earnings and sales growth to slow down in the third quarter. This may come as a surprise to you, given that U.S. economic growth heated up to a 4.2% annual pace in the second quarter. But the reality is that global economic growth is slowingand it will impact third-quarter earnings.

In addition, the recent strength of the U.S. dollar will also influence earnings and sales. The U.S. dollar has gotten its mojo back and is now at one-year high against major currencies. The only problem with a strong U.S. dollar is that it pinches corporate profits for companies with international salesand what successful company today doesn’t operate in the global marketplace?

In this type of an environment, it’s more important than ever to know which companies are going to buck the trend and post better-than-expected earnings and salesand which companies are going to disappoint. And that’s my goal with this special Market 360 earnings series.

Alcoa Kicks Off Earnings Season

For better or worse, Alcoa (AA) is the grand master of earnings season. When this company reports, it signals the official start of the season and sets the tone

If Alcoa disappoints, many will be wary of earningswhich could actually set up powerful moves for strong companies that beat the consensus estimate. These stocks will suddenly become even more attractive to risk-averse investors, and their share prices can quickly rise.

On the other hand, if Alcoa has a stunning quarterly report, it can lift expectations for other companies. As a result, weak companies that fail to beat these new expectations are harshly punished.

Now, these are generalities and there is no specific action you should take based on whether AA has a good report or a bad one. You should always ditch companies that fail to grow sales and earnings and stick with only the most fundamentally sound companies in the market. So this is just something to keep in mind as we separate the good stocks from the bad following Alcoa’s report today.

Expectations for Alcoa Earnings

Alcoa is set to report third-quarter financial results after the market’s closing bell today. The consensus estimate is for the company to report earnings per share of $0.23 on $5.85 billion in sales. This would represent 109% annual earnings growth, and 1.5% annual sales growth.

In the past two quarters, Alcoa has produced a positive earnings surprise, +80% and +50% respectively. And I look for this trend to continue with third-quarter earnings: Analysts have revised their estimates 53.3% higher in the past three months, and positive analyst revisions typically precede an earnings surprise.

Up Next

In the October 14 edition of my third-quarter earnings series, we’re going to turn our attention to banks. Financial institutions are always a crap shoot, in my opinion. Most investors loathe the big banks, especially given the most-recent financial crisis.

I personally don’t trust banks. As an ex-banking analyst, I know better than to own banks. For one, I know too much about their accounting and have no interest in getting anywhere near that again.

That said, not every banking stock ranks badly in my Portfolio Grader system. There are a few bright spots that you could consider owning.

No matter what, next week is sure to be interesting with the majority of the big-name financialsincluding American Express (Wednesday), Bank of America (Wednesday) and Citigroup (Tuesday)all posting their results from the most recent quarter. So I’ll be back in touch again on October 14 with a recap of the banks that have already reported and a preview of those yet to come.

Sincerely,

Louis Navellier

*Please note that earnings dates can change. All expected earnings dates mentioned are accurate as of the publishing date.