Buy Intel, Yahoo! and Alcoa; Sell Infosys

NEW YORK ( TheStreet) -- Earnings season for the second quarter officially kicked off when aluminum giant Alcoa ( AA) stepped up to the plate last week and reminded investors of just how committed it is about turning its fortunes around and returning value to shareholders.

The same can't be said about Infosys ( INFY), which disappointed analysts with a miss. On Tuesday, two tech titans in Intel ( INTC) and Yahoo! ( YHOO) will either affirm their rebounding potential or what many believe to be their continued path toward obscurity.

Reason to Buy Alcoa

If you are not a fan of mixing sports references, allow me to apologize now. Alcoa, although did not hit a home run during its report, certainly did not fumble the ball as many continue to suggest. In fact, the company did better than held its own under what continues to be a very challenging environment for all within the aluminum business.

Although the company reported no EPS for the quarter, Alcoa generated revenue of $5.963 billion. The company did however log 6 cents EPS excluding special items -- topping analyst estimates of 5 cents per share. It is clear that it is still feeling the effects of double-digit annual declines in aluminum prices -- a concern that has hurt not only its gross margins but also its operating earnings, which fell by 7 points and 77% respectively.

Be that as it may, Alcoa deserves a considerable amount of credit for continuing to make the best out of a bad situation -- particularly by focusing on its downstream business, where it showed a considerable amount of improvement. From an investment perspective, I see Alcoa's shares as being severely discounted to its true potential by at least 20% over the next six to 12 months.

Value investors should take this as an opportunity to get in on a good company. It is facing some headwinds at the moment but has a solid history of performance. Though the market may wish to discount the shares, investors can feel reassured that the company's management appears focused on what it can do to produce growth and generate value for shareholders.

Reason to Buy Intel

The chip giant will be reporting its second-quarter earnings on Tuesday after market close and analysts are expecting revenue of $13.60 billion -- topping the $13.03 billion it reported in the same period of a year ago. However, while its revenue is expected to arrive on the higher end, it is expected to shed 1 cent from its earnings per share to 53 cents from its report of a year ago of 54 cents.

The stock is currently trading at $25.25, almost 20% under the average analyst price target of $29.71. I expect the stock to rise moderately post earnings and expect the company to beat on both the top and bottom lines -- that's what it does. The company has either met or exceeded estimates in each of the past four quarters.

As the stock continues to trade at what I believe to be a considerable discount with a price-to-earnings ratio of 9, I see at least 25% more upside in the shares in the near term, putting the stock at $32 and possibly $35 by year-end. Furthermore, the company will undoubtedly log its best financial performance in 2012.

Investors should expect Intel to demonstrate continued strength in emerging markets, from the explosion of smartphones and mobile devices and from corporate and consumer migrations towards cloud infrastructures. If you are a value investor looking for a safe investment in technology and one that pays a respectable dividend, you should consider Intel.

Reason to Buy Yahoo!

As with Intel, search giant Yahoo! Is expected to report earnings on Tuesday after markets close. Also similar to Intel, it has met or exceeded analysts' estimates in each of the past four quarters -- and I don't expect this one will be different. For the quarter, the company is expected to report revenues of $1.09 billion -- topping the $1.08 that it reported a year ago.

Earnings per share is expected to arrive at 23 cents -- topping the 18 cents per share that it registered during the same quarter of a year ago. Though the company has been down of late, investors continue to misinterpret its story. Yahoo! is also profitable, with a considerable amount of cash and some interesting and somewhat appealing assets.

Yahoo! continues to be one of the most misunderstood companies on Wall Street. But the company understands itself and its goals. It appears to have a firm grasp of what is at stake in terms of its future. With the stock trading at $15.74, it is down by almost 15% from the average analyst target of $18.00. Though this also comes with a hold recommendation, I would consider buying Yahoo! at this level ahead of earnings to possibly capitalize on a quick spike upward.

Reason to Sell Infosys

One of last week's disappointment arrived at the hands of Infosys, which released earnings on Thursday and prompted analysts to ask, " will it survive?" For the quarter, though its revenue increased by almost 5%, the company reported earnings per share of 73 cents -- missing consensus estimates by a penny.

On the announcement, Needham & Company analysts reiterated their "hold" rating on the stock. The stock dropped as much as 14% after the report though it has since then rebounded slightly. I still see potential downside risk in the shares until the news completely wears off. I think the stock is yet expensive with a P/E of 13 and if you are a holder of the stock, you might consider selling at current levels with a possibility of entering back in at the $35 range -- saving an extra 10%.

Bottom Line

Earnings season can be both an exciting time as well as one that brings a lot of anxiety for companies as well as investors. It's called the reporting period for more than one reason as companies are essentially sharing their quarterly report cards -- where getting a passing or failing grade often depends on the expectations that were set.

In this article, there was Alcoa passed where Infosys fell short. Yahoo! and Intel have yet to report and their track records suggest buying ahead of the report may be a smart thing to do. Let's hope we're right.

In my next article, we're going to look at possible earnings plays in IBM ( IBM), Qualcomm ( QCOM) and Bank of America ( BAC).

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.