With Alcoa's earnings report we will get a clue as to the strength of the economy and the ability of corporations to deal with rising input prices. I theorized last quarter that more and more companies would warn about decreasing profits as a result of higher inflation. That theory failed to fully materialize.
That is not to say there were chinks. Some companies did indeed note rising input prices, but for the most part the majority of companies were silent on the issue. In addition to Alcoa's report, investors should pay close attention to U.S. Steel (X - Get Report).The large domestic steel maker should be the beneficiary of a growing global economy, but just how damaging will higher costs be to the bottom line? Analysts expect a first quarter loss of 42 cents per share. The real test will be the outlook for the future. At the moment the expectation is for a full year profit of $3.95 per share. For now investors have been selling U.S. steel in anticipation of lower profit margins. To the extent there is no mention of the negative impact of inflation this stock could rocket higher U.S. Steel, one of JPMorgan's 13 favorite stocks for 2011, shows up on recent lists of Top-Performing Stocks Picked by Funds and 10 Steel Stocks With Upside.