Well, the stock market sure woke up on the wrong side of the bed this morning!
After a long holiday weekend, investors were greeted with a more than 1% drop in the major indices. The NASDAQ was hit particularly hard, down as much as 2% earlier in the trading day. The fact of the matter is Wall Street was cranky because the 10-year Treasury surged to a two-year high today.
The 10-year Treasury yield now sits at about 1.85%. That’s up from 1.51% on December 31, 2021. That’s a fairly dramatic rise in the 10-year Treasury, and it’s a big reason for why we saw a massive rotation out of the tech-heavy index today.
The financial media would have you believe higher rates will hurt tech stocks, but that’s simply not true. Here’s the reality: The global pandemic accelerated technological change, with many folks working and studying remotely. And this technological change boosted productivity in the U.S., with several industries leading the productivity miracle. So, tech stocks, especially semiconductor companies, will have some of the best quarterly results in mid-January through mid-February. And wave-after-wave of positive results will not only help these stocks firm up but also drive their shares higher. It’s one reason why I’m betting big on 5G.
Tech stocks aside, this earnings season should also trigger rebounds in fundamentally superior stocks that were hit during today’s selling. I expect Wall Street to become laser-focused on earnings over the next five weeks, and after all the reports are out, we’ll see who’s left standing. I anticipate the winners will be those with superior fundamentals, i.e., my Breakthrough Stocks. My Buy List companies have 57.2% average forecasted annual sales growth and 231% average forecasted annual earnings growth. They should also issue positive forward guidance.
Now, due to more difficult year-over-year comparisons, my Breakthrough Stocks are actually “decelerating” from the previous 78.2% average annual sales growth and 724.8% average annual earnings growth. However, my Buy List stocks are still set to achieve earnings and sales growth well above the average S&P 500 company. According to FactSet, the S&P 500 is anticipated to achieve 21.8% average earnings growth and 12.9% average revenue growth.
The Bellwether Steps Up to the Earnings Bat
We’ve heard from a few companies so far, including the Big Banks (I’ll review their quarterly results later in the week, so stay tuned for that!), but I’m most excited to hear from Alcoa Corporation (NYSE:AA), which will report its fourth-quarter earnings results tomorrow afternoon. As you probably know, Alcoa is known for establishing the aluminum industry more than 130 years ago. The company primarily manufactures and sells bauxite, the primary source of aluminum, as well as alumina, aluminum, cast products, energy and rolled products. Alcoa actually is one of the largest bauxite producers in the world with seven active mines, as well as is the leading producer of alumina.
Alcoa is also considered a “bellwether” for earnings season, as it’s a stock investors have turned to in the past as an indicator for how the coming earnings season will shake out. Currently, analysts expect Alcoa’s earnings to surge 653.8% year-over-year to $1.96 per share, up from earnings of $0.26 per share a year ago. Revenue is estimated to climb 40.5% year-over-year to $3.36 billion.
I should note that analysts have lowered earnings estimates in the past three months, following the company’s announcement that it will temporarily halt production at its Spain plant due to rising energy costs. Alcoa noted that the production halt would reduce earnings by $0.32 per share, which is why analysts have lowered earnings estimates initially. Interestingly, in the past week, analysts have increased estimates by nearly 11%.
Personally, I believe Alcoa will post impressive fourth-quarter results. The reality is that aluminum prices are trekking higher again. The World Bank revealed that aluminum prices jumped from $2,004 per tonne in January 2021 to more than $2,900 per tonne in January 2022. Prices are anticipated to rise 6% this year, thanks to ongoing demand from the auto industry, rising energy prices and supply shortages.
Suffice it to say, Alcoa is the stock to watch tomorrow.
But for today, don’t be discouraged by today’s wild market gyrations. The reality is that earnings work 70% of the time, so given that earnings momentum has tapped the brakes a bit due to tougher year-over-year comparisons, I think companies that achieve better-than-expected results will see their shares climb higher as investors celebrate their results.
It’s why now is the time to make sure you’ve filled your portfolio with fundamentally superior stocks. If you’re not sure where to look, you might want to review my Breakthrough Stocks Buy List. As I mentioned, my stocks should post much strong earnings than the average S&P 500 company. I should also note that I recently created a special model portfolio I call the 5G Hypergrowth Portfolio: Six Stocks to Incredible Wealth. Each company is directly in line to profit from 5G.
I will be recommending another 5G stock on Thursday, after the market close. So, if you join Breakthrough Stocks today, you’ll have access to this new recommendation as soon as it’s released.
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Alcoa Corporation (AA)
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