NEW YORK (TheStreet) -- Former Dow component Alcoa (AA) reports quarterly results after the closing bell Tuesday. On Monday, I wrote "Caterpillar, Intel Have Led the Dow 30 Higher as Earnings Begin"." If Alcoa were still in the Dow Jones Industrial Average, it would be the best performer. Its shares are up 39% year to date.
Note that in the Dow tables presented Monday, the new components did not help the index achieve the 17,000 milestone. Goldman Sachs (GS) is down 4.4% year to date, Nike (NKE) is down fractionally and Visa (V) is down 2.8%.
Today I added a column showing 12-month trailing price-to-earnings ratios to my first "Crunching the Numbers" table, just before the five key moving averages. In general, I believe P/E ratios have become stretched.
Let's take a look at the stock profiles:
Alcoa ($14.74) is up 39% year to date and is above all five moving averages in the first table. Analysts expect Alcoa to report earnings per share of 13 cents after the closing bell Tuesday. The company's 12-month trailing P/E ratio is elevated at 40.5. The stock traded as high as $15.18 on June 26.
The weekly chart is positive but overbought with its five-week modified moving average at $14.34. Semiannual and quarterly value levels are $13.11 and $12.19, respectively, with weekly and monthly risky levels at $15.34 and $15.61, respectively.
Bob Evans Farms (BOBE) ($50.13) is down just 0.9% year to date and is below its 200-day simple moving average at $50.87. Analysts expect the family restaurant chain and provider of food products to report EPS of 42 cents after the closing bell Tuesday. Bob Evans has an elevated P/E at 30.5.
The weekly chart is positive with its five-week MMA $49.27. Annual and monthly value levels are $46.65 and $42.59, respectively, with a semiannual pivot at $49.24, and quarterly and semiannual risky levels at $54.41 and $58.72, respectively.
Family Dollar (FDO) ($64.74) is down 0.4% year to date and is below its 21-day simple moving average at $66.88. Analysts expect the discount retailer to report EPS of 90 cents before the opening bell on July 10. The company has an elevated P/E ratio at 20.5.
The weekly chart is positive with its five-week MMA $63.76. Annual and quarterly value levels are $64.60 and $63.46, respectively, with weekly and semiannual risky levels at $68.45 and $84.89, respectively.
WD-40 (WDFC) ($75.58) is up 1.2% year to date and is above all five key moving averages. Analysts expect the manufacturer of the miracle lubricant to report EPS of 72 cents after the closing bell on Wednesday. The company has an elevated P/E ratio at 28.4.
The weekly chart is positive with its five-week MMA $74.45. Monthly and weekly value levels are $74.78 and $74.15, respectively, with semiannual and quarterly risky levels at $76.42 and $78.17, respectively.
Wells Fargo (WFC) ($53.00) is up 16% year to date and is above all five key moving averages. Analysts expect this "too big to fail" money center bank to report EPS of $1.01 before the opening bell on Friday. The banking giant has a reasonable P/E ratio at 13.1.
The weekly chart is positive but overbought with its five-week MMA $51.77. Semiannual value levels are $50.95 and $43.27 with a quarterly pivot at $53.09 and monthly and weekly risky levels at $54.55 an $54.56, respectively.
Only July 7 I wrote, "Wells Fargo, PNC Financial Lead 24 Banks in the KBW Banking Index", where I noted that all 24 banks seemed to be anticipating better-than-expected earnings based upon the technicals, but I provide some reasons for caution.
Crunching the Numbers With Richard Suttmeier: Moving Averages and Stochastics
This table provides the technical status for the stocks profiled in today's report.
There are five columns with moving average titles: Five-Week Modified Moving Average; 21-Day Simple Moving Average; 50-Day Simple Moving Average; 200-Day Simple Moving Average; and the 200-Week Simple Moving Average.
The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with a reading of oversold, rising, overbought, declining or flat.
Interpretations: Stocks below a moving average are listed in red.
Five-Week Modified Moving Average (MMA) is one of two indicators that define whether a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.
A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.
A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.
A stock with a neutral technical rating has a profile that is not positive or negative.
The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance level and as a "reversion to the mean" over a rolling three- to five-year horizon. (Even Apple (AAPL) declined to its 200-week SMA in June 2013.)
The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three- to five-day horizon and vice versa.
The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.
The 200-Day Simple Moving Average is another technical support or resistance level, and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)
Crunching the Numbers With Richard Suttmeier: Earnings & Where to Buy & Where to Sell
This table presents the EPS estimates including date and before or after the close, and where to buy on weakness and where to sell on strength.
"EPS Date" is the day the company reports its quarterly results.
"EPS Estimate" is the EPS estimate from Wall Street analysts.
Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.
Investors who wish to buy a stock should use a good-'til-canceled limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Now let's look at TheStreet Ratings' take on some of these stocks.TheStreet Ratings team rates WELLS FARGO & CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate WELLS FARGO & CO (WFC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.75% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WFC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- WELLS FARGO & CO has improved earnings per share by 14.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WELLS FARGO & CO increased its bottom line by earning $3.89 versus $3.36 in the prior year. This year, the market expects an improvement in earnings ($4.10 versus $3.89).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Commercial Banks industry average, but is less than that of the S&P 500. The net income increased by 14.0% when compared to the same quarter one year prior, going from $5,171.00 million to $5,893.00 million.
- The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 93.89%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 27.25% trails the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, WELLS FARGO & CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: WFC Ratings Report
TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ALCOA INC (AA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, AA's share price has jumped by 90.38%, exceeding the performance of the broader market during that same time frame. Although AA had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- AA, with its decline in revenue, underperformed when compared the industry average of 4.5%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ALCOA INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ALCOA INC swung to a loss, reporting -$2.15 versus $0.17 in the prior year. This year, the market expects an improvement in earnings ($0.45 versus -$2.15).
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, ALCOA INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 219.5% when compared to the same quarter one year ago, falling from $149.00 million to -$178.00 million.
- You can view the full analysis from the report here: AA Ratings Report