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Alcoa Earnings: First & Worst Yet Possibly Point to a Short-Term Burst


Pamela Anderson, the model, actress and former star of Baywatch, may be known for a lot of things, but securities analyst is not typically on her list. But who knew when the Canadian-born blonde once quipped "with low expectations it's very easy to surprise people," that she was nailing Alcoa's (AA) most recent quarter.

While the aluminum maker officially delivered its third consecutive bottom-line surprise when it topped expectations by $0.03 per share, what you may not know is that those results were not only down 80% from a year ago, but also beat the lowest of low expectations.

"If you look at the start of the third quarter, back on June 30th, analysts were looking for about $0.12 per share," reveals John Butters, senior earnings analyst at FactSet in the attached video. "That number came down during the course of the quarter until expectations were essentially zero."

So, if low expectations are easy to beat, you can imagine how simple it is to top zero expectations. And yet, Butters says, this economic bellwether which serves all sorts of manufacturing businesses around the globe, still found a way to disappoint an already pessimistic street by lowering it's forecast for growth in end demand for aluminum to 6% from a prior target of 7%.

But alas, Butters says there's a silver (or perhaps aluminum) lining to all of this, and it might just offset a weak and struggling stock. That's because "over the last 10 years, during quarters when Alcoa beat estimates, the market was typically up an average of 4% in the next few months."

If history repeats itself, that means Alcoa's clunker of a quarter might actually push stocks to a fresh 5-year high, with the S&P 500 moving up to 1500, yet still leaving Alcoa and Hewlett-Packard (HPQ) as the lone losers in the Dow.