Sequestration Could Ding Q1 Earnings

NEW YORK ( TheStreet) -- First-quarter earnings season begins like all others with the report from Alcoa ( AA ) after the close today. Improved auto sales could help the company, but the global economic slowdown and sequestration spending cuts could be a drag on Alcoa and the basic materials sector.

After Alcoa, earnings shifts to consumer spending and on Wednesday we get reports from one consumer staples company and two retail-wholesale companies. Two of the three have buy ratings according to ValuEngine.

The earnings report I am watching on Thursday is a sell-rated trucker from the transportation sector I have been warned about.



Friday premarket two of the four "too big to fail" banks report quarterly results and I will cover them in a special update on the big banks on Thursday.

The basic industries sector which includes Alcoa is the only undervalued sector, undervalued by 6.4%. It is also the weakest sector, down 4.0% month to date and down 31.1% overall over the last 12 months. The sector consists of 418 stocks with only one rated strong buy, 12 rated buy, 129 rated sell and 50 rated strong sell. This makes it difficult to pick winners in this sector.

The consumer staples sector is 16.2% overvalued but out of 267 stocks, 130 have buy ratings with only ten rated sell and 4 rated strong sell.



The retail-wholesale sector is similarly configured with an overvalued reading of 14.0%. This sector contains 358 stocks with three rated strong buy, 232 rated buy, and just 20 rated sell and two rated strong sell.

Tomorrow I will profile several retail-wholesale stocks that should outperform the market and outperform discretionary and staples stocks.

Reading the Table

OV / UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy.

Last 12-Month Return (%): Stocks with a Red number declined by that percentage over the last twelve months. Stocks with a Black number increased by that percentage.

Forecast 1-Year Return: Stocks with a Red number are projected to decline by that percentage over the next twelve months. Stocks with a Black number in the Table are projected to move higher by that percentage over the next twelve months.

Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.

Alcoa ($8.24) reports after the close today and is expected to earn 11 cents a share. The stock has a hold rating, is 18.2% undervalued and is down 14.4% over the last 12 months. The stock is below its 200-day simple moving average (SMA) at $8.70 with a weekly value level at $8.19 and monthly risky level at $8.75. The weekly chart profile is negative with the stock below its five-week modified moving average (MMA) at $8.57.

Constellation Brands ( STZ) ($47.84) reports before the open on Wednesday and is expected to earn 45 cents a share. The stock traded to a multi-year high at $49.21 on April 2 and recently was downgraded to hold from buy. The stock is 29.3% overvalued after a gain of 121.4% over the last 12 months. The stock is well above its 200-day SMA at $34.96 with a quarterly value level at $40.42, a monthly pivot at $48.19 and weekly risky level at $59.45. The weekly chart profile is positive but overbought with the stock above its five-week MMA at $44.31.

Family Dollar ( FDO) ($59.40) reports before the open on Wednesday and is expected to earn $1.22. The stock has a buy rating, is 9.0% undervalued and is down 8.4% over the last 12 months after setting a 52-week high at $74.73 on June 14, 2012. The stock is below its 200-day SMA at $63.58 with an annual value level at $49.09, a monthly pivot at $59.00 and quarterly risky level at 68.38. The weekly chart profile is positive with the stock above its five-week MMA at $59.24.

Bed Bath & Beyond ( BBBY) ($63.76) reports after the close on Wednesday and is expected to earn $1.68. The stock has a buy rating, is 8.3% undervalued and is down 11.4% over the last 12 months after setting a 52-week high at $75.84 on June 19, 2012. The stock is above its 200-day SMA at $60.92 with a weekly value level at $62.57, a semiannual pivot at $64.14 and semiannual risky level at 73.59. The weekly chart profile is positive with the stock above its five-week MMA at $61.35.

JB Hunt Transport ( JBHT) ($73.40) reports on Thursday and is expected to earn 64 cents per share. The stock has a sell rating, is 17.5% overvalued and is up 31.3% over the last 12 months. The stock is well above its 200-day SMA at $60.19 with a monthly value level at $71.26 and weekly risky level at $73.61. The weekly chart is positive but overbought with the five-week MMA at $70.97.

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

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