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Alcoa, Intel and Lemmings on Parade

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January 10, 2011 – Comments (2) | RELATED TICKERS: AA , INTC , SNX

For some reason, we have been getting quite a few requests for valuation worksheets that center on companies about to release earnings. Maybe just ahead of earnings is the right time to begin researching a stock, who's to know?

At Wax Ink, we seldom pay much attention to earnings announcements, basically because while important, the earnings that are announced are for the most part not audited, and therefore subject to adjustment. And because they are subject to adjustment, we simply don't believe we should use them in our valuation work.

So while we maintain a very lengthy watch list, we simply cannot maintain current investment research or stock valuations for all of the 2500+ stocks in our investment universe.

Which is why last week when we were asked to build worksheets for several companies, were pleasantly surprised to find that two of the requests were for companies we knew nothing about.

Basis

Our valuation work is based on audited financial information as taken from a company's most recent SEC Form 10-K filing. Quarterly financial information is not used unless otherwise noted.

The Companies

Alcoa, Inc. (NYSE: AA) The company manufactures aluminum products for use in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications. Management recently announced that it was restarting three of its idled smelters, and adding 260 jobs.

The stock closed recently at $16.42 with resistance at $17.60 and support at $14.05. Our Reasonable Value Estimate for the stock at this time is $15.00, with a Buy Target of $8.50, a First Sell Target of $17.00 and a Close Target of $18.00. Earnings are slated to be announced next week with consensus earnings estimates pegged at $0.19 compared to one year ago earnings of $0.01.

Synnex Corporation (NYSE: SNX)The company is a business process services company, serving resellers, retailers and original equipment manufacturers worldwide, providing services in IT distribution, supply chain management, contract assembly and global business services. The company recently announced an agreement with Symantec Corporation (Nasdaq: SYMC) for distribution of Symantec's storage and security products in North America.

The stock closed recently at $31.82 with resistance at $32.66 and support at $30.20. Our Reasonable Value Estimate for the stock at this time is $53.00, with a Buy Target of $32.00, a First Sell Target of $63.00 and a Close Target of $66.00. Earnings are slated to be announced next week with consensus earnings estimates pegged at $0.96 compared to one year ago earnings of $0.87.

CLARCOR, Inc. (NYSE: CLC) The company is a diversified marketer and manufacturer of mobile, industrial and environmental filtration products and consumer and industrial packaging products sold in domestic and international markets. Management has recently announced an increase in its annual dividend of almost 8%, from $0.39 to $0.42.

The stock closed recently at $43.19 with resistance at $44.55 and support at $41.73. Our Reasonable Value Estimate for the stock at this time is $37.00, with a Buy Target of $23.00, a First Sell Target of $44.00 and a Close Target of $46.00. The company is scheduled to announce earnings next week. Consensus earnings estimates are $0.56, compared to one year ago earnings of $0.49.

Intel Corporation (Nasdaq: INTC) The company is a diversified designer and manufacturer of the essential technologies that serve as the foundation for the world’s computing devices. Management recently announced, well...absolutely nothing.

The stock closed recently at $20.66 with resistance at $20.80 and support at $17.60. Our Reasonable Value Estimate for the stock at this time is $31.00, with a Buy Target of $18.50, a First Sell Target of $36.50 and a Close Target of $38.50.The company is scheduled to announce earnings next week with consensus estimates at $0.53, compared to one year ago earnings of $0.40.

Final Thoughts

As we noted, of late there have been more frequent requests for worksheets just ahead of earnings announcements.

Certainly we hope that the investors and investment managers that purchase our worksheets use them wisely and as we intend them to be used, which is as a basis for additional research.

But for those that couple our value estimates with earnings estimates in hopes of making a very short-term gain, we offer something we learned about the markets a very long time ago.

While the stock PRICE may always be fairly valued, the stock VALUE may not always be fairly priced.

Wax

2 Comments – Post Your Own

#1) On January 10, 2011 at 11:11 AM, EnigmaDude (92.67) wrote:

Those are some good points, Wax.  Personally, I try to use earnings announcements to my advantage only after I have already decided to make a trade.  If I am thinking about unloading a stock and it gets a nice pop on an earnings beat, I may use that opportunity to sell.  Or if it has momentum and they beat estimates, that is often a good time to buy as the price is likely to continue to rise.

Conversely, if its a stock I want to add and the stock drops due to an earnings miss I may buy on the dip.  But a miss on a single quarter's earnings is rarely by itself a good reason to sell.

I just bought some INTC shares and might buy more if they have a "bad" earnings report.

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#2) On January 11, 2011 at 4:54 AM, wax (97.14) wrote:

Enigma;

I have tried to use those small momentum trends just before or after earnings announcements to my advantage.

Like you, my thought was this would be the best time to start or close a position. And for a while the trend was my friend.

Then the jerk, my friend the trend, turned on me. For no reason! I couldn't believe it! What an a_hole!

So today, I buy when the price is at "X" and I sell when the price is at "Y".

And the trend is the friend of someone else.

Wax

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