Sell Infosys, Buy Intel and Yahoo!

NEW YORK (TheStreet) -- First-quarter earnings season officially kicked off Tuesday when aluminum giant Alcoa (AA) reminded investors that good companies don't stay down for very long.

This week we will get reports from three companies that can appreciate Alcoa's ability to navigate a drastically changing industry. These three have had their own battles with, among other things, a fiercely competitive environment and a market that wants proof they can deliver the goods.

Infosys (INFY) has struggled amid a difficult enterprise spending environment to drive higher IT consulting services despite the company being arguably better managed than most of its rivals.

The concern has always been whether Infosys has enough oomph to overtake IBM (IBM) and Accenture (ACN) when spending does recover. Infosys reports fiscal second-quarter results Tuesday.

The Street will be looking for 80 cents in earnings per share on revenue of $2.12 billion, which would represent a year-over-year revenue increase of 9.5%. While 9.5% jump in revenue is relatively impressive, this has never been the issue impacting Infosys. Rather, very little of that revenue has trickled to the bottom line.

To that end, with earnings-per-share expected to growth just 2.5% this quarter, management continues to struggle to raise the company's market position. Until the company shows more action and less reaction, I don't see much upside potential to these shares. The better option in this space remains IBM.

For a similar reason, Intel (INTC) has been overlooked. The company is perceived as inadequate in the realm of mobile devices. Compared to, say, Qualcomm (QCOM), I have to agree. But Intel, which still has world-class technological and manufacturing capabilities, has not been asleep at the wheel.

Management has cited these operational advantages as a means to grow long-term value. This, however, has not done enough to quench investors' obsession with quarter-to-quarter performances. When Intel reports first-quarter earnings Tuesday, management must convince the Street it deserves more time execute its vision.

The Street will be looking for 37 cents in earnings per share on revenue of $12.8 billion. Earnings are expected to fall almost 8%, while revenue is seen rising less than 2%. Given the deficits Intel is working to overcome, expectations have come down over the past several quarters. Essentially, no one is expecting a miracle.

What investors want to see are signs that the worst is over. Aside from beating revenue and earnings estimates, management will need to guide with more confidence that business conditions are expected to improve.

In that regard, management has laid out plans to grow the chip business in emerging markets and reinvesting cash flow into research and development. Until Intel shows that it has taken a drastic step backward, the stock remains a buy and management deserves more time.

Finally, we have Yahoo! (YHOO), which also reports first-quarter earnings Tuesday. With constant news surround a possible IPO for Alibaba, in which Yahoo! owns 24% stake, investors sometime forget that Yahoo! still has strong businesses that CEO Marissa Mayer is working to grow.

There are questions with the company's direction. Investors are not sure if Yahoo! wants to be strictly a media company that focuses on content delivery or a technology company with an innovative strategy. Although Yahoo! continues to be misunderstood, Marissa Mayer has a strong grasp of what Yahoo! needs to move forward. On Tuesday, she's certain to be pressed for details.

The Street will be looking for 37 cents in earnings per share on revenue of $1 billion. According to some estimates, both figures are expected to be flat on a year-over-year basis. But don't mistake this for a disappointment. Yahoo! is still in the early stages of its rebirth under Mayer.

Given the 15% decline the stock has suffered in recent weeks, I see this as a strong buying opportunity. Yahoo! still has the ability to post growth in key areas like online advertising and mobile monetization. The current stock price assumes Mayer won't figure it out. But with strong assets like its Finance and Sports businesses, which Mayer can use to become more aggressive, this is the wrong bet to place.

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

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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