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 AlcoaIf 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.
Reason to Buy IntelThe 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.