MINNEAPOLIS ( Stockpickr) -- Alcoa ( AA) officially kicked off earnings season with its report after the close on Monday. The Dow component reported a profit of $258 million or $.24 cents per share easily besting the average Wall Street estimate of $.19.

In addition to the positive earnings momentum, the company expects global demand for aluminum to increase by 12% in the coming year. That growth will come from a stronger auto sector and improving global economy.

Investors are not buying the news. The earnings beat was not enough to impress traders, who pushed Alcoa's share price lower by more than 1% on Tuesday. The big concern appears to be related to China and the possibility of slower growth there.

I would view the trading to be a buy-the-rumor, sell-the-event moment. Investors anticipating strong results had already pushed shares higher. A big beat followed by some small profit-taking is not out of the ordinary. The move marks a transition to prove-it-to-me mode, with investors likely to be cautious until the company can show that earnings momentum will continue.

Related: Stocks for the Buy-and-Hold Investor

In the housing market, Lennar ( LEN) followed KB Home's ( KBH) positive earnings report with its own earnings beat. The company reported that it earned 17 cents per share, beating Wall Street estimates of 2 cents per share but below the 19 cents per share earned in the year prior.

No correction in share price here. Lennar was up more than 8% on the news, pushing the entire homebuilder segment higher.

Let's take a look at a few names yet to report this week.

Commerce Bancshares ( CBSH)

We'll get an early read on the health of mid-tier banks with the earnings report of Commerce Bancshares on Thursday. I've theorized that larger banks would be active in buying smaller names in 2011. Those deals depend on continued balance sheet improvement and valuation.

On valuation, the banks have rallied significantly, making deals a bit pricier. Commerce shares are up more than 10% since November. Analysts expect the company to make 66 cents a share in the quarter ending in December.

A big number is needed to keep the needle moving. My guess is that Wall Street wants to push shares lower in hopes that a larger bank can acquire at a cheaper price. Only a strong beat prevents that outcome from happening.

Intel ( INTC)

Is the personal computer dead? We'll get an update on the health of this pivotal technology when Intel reports earnings results on Thursday. Investors look skeptical as they bid up prices of smart phones and other hand held devices instead of companies tied to the personal computer.

The result for Intel is a stock that has traded sideways for much of the past year. As such its valuation is fairly attractive. Shares trade for just 10.5 times 2010 earnings estimates of $1.99.

The problem for Intel is that analysts expect the company to make less money in 2011. Thursday's report will shed more light on the accuracy of those predictions. Given the hoopla over Apple and the iPhone, there is legitimate concern.

Intel is a bargain, but only if PC growth continues. I'm not convinced. Shares in Intel may still be too pricey. I look for more bad news on Thursday and shares to fall as a result.

Intel holders include Renaissance Technologies and Ken Fisher. Jim Cramer chose it as one of his favorite Dow stocks for 2011, and according to Jake Lynch, it's one of the 10 Dow stocks with the best three-year dividend growth.

Sealy ( ZZ)

With all the momentum in the housing sector, the time may be right to bet on peripheral names that benefit when the sector is strong. For example, mattress companies boomed when housing boomed and busted when housing busted.

Many names in the group, including Sealy, have yet to recover fully. At the same time, old mattresses need to be replaced. The recommendation by some manufacturers is seven to 10 years.

Doing the simple math and you figure a whole lot of mattresses that were purchased at the peak of the housing boom now need to be replaced. That might bode well for names such as Sealy.

On Thursday, Sealy reports earnings. Analysts expect the company to post a puny profit of 2 cents per share in the period. With KB Home and Lennar posting big numbers, the play here is to look for Sealy to beat. If so, this small-cap stock will rocket higher.

Shuffle Master ( SHFL)

Since peaking in 2006 near $40 per share, automatic shuffle maker, Shuffle Master has been on a steady decline. Failure to innovate new products and exhaustion of existing product contributed to the decline.

The stock was a big double-digit gainer in 2010 thanks in part to the recovery in the global economy, in particular to growth prospects for casinos in China. Over the last two quarters, the company has beaten earnings estimates, helping to support the gains in share price.

For the quarter ending last October analysts expect Shuffle Master to post a profit of 13 cents a share. That would bring the fiscal-year total to 47 cents per share. At current prices, the stock trades for 24 times earnings.

For the next fiscal year ending October 2011, the estimate is for the company to earn 54 cents per share. That would be a solid 17% gain year over year and bring the earnings multiple on a forward basis down to 20.

Would you pay 20 times earnings for a company that is expected to grow profits by 17%? I would if I knew that earnings were going to be significantly stronger than current estimates.

The current trend suggests that analyst estimates in general are too low. Traders on the long side in advance of Shuffle Master's report are likely to see a 5% to 10% gain in the stock.

To see these stocks in action, check out the Earnings Trades portfolio.

-- Written by Jamie Dlugosch in Minneapolis.


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At the time of publication, author had no positions in stocks mentioned.

Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor, The Prudent Speculator, Penny Stock Winners and InvestorPlace Media.

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