Alcoa (NYSE:AA) Earnings Meet Whisper, CSX Tops (NYSE:CSX)

Tuesday, July 13, 2010

Alcoa logoFirst reports out, NYSE:AA and NYSE:CSX top estimates

The Shanghai Composite was down overnight after ministry officials quashed speculation that it would loosen its residential lending curbs sending the SE Comp down 1.6%. Yet optimism rebounded strongly in the European session with London, Paris and Frankfurt all up nearly 2%. US futures are trading up over 1% pre-market.

Aloca (NYSE:AA) kicked off earnings season last night hitting the whisper numbers of EPS of $0.13 per share and besting analyst estimates for $0.12. Notably, the top line beat as well with revenues of $5.2 billion versus $5.0 bilion expected. CEO, Klaus Kleinfeld, said "The top and bottom line growth was driven by higher volumes from stronger end markets and continued gains from our productivity programs." This statement is consistent with companies that continue to enhance efficiencies coupled with a recovering economy. Kleinfeld therefore raised their "projection for aluminum consumption from 10% to 12% this year." The first announcement out and earnings impress. NYSE:AA is trading up 4.4% pre-market.

CSX Corporation (NYSE:CSX) handily topped bottom-line estimates reporting $1.07 per share versus expectations for $0.98 and even beat on the top-line with $2.7 billion versus $2.6 billion expected. From the conference call, CEO, Michael J. Ward, notes that the "Q3 volume and revenue outlook is favorable" and "productivity gains are helping to deliver margin expansion, cost efficiency". He expects "growth in merchandise volumes in all markets". Another report reiterating the same story: the most under-appreciated aspect of this recovery: productivity gains.

Buying puts on the indexes to hedge, shorting Tesla Motors (NASDAQ:TSLA)

While these initial reports have been very positive, the market is on its 5th day positive in a row. I still think we are still in a bear trend lower. I am unconvinced that the 16% correction is enough after the 80%+ rally we saw since May 2009. Summer months are typically poor times for performance and the 10 days of nasty selling we saw to end June seem unlikely to simply end in this fashion. Last week was a great rally and worthy of a trade to the long side but I started hedging my longs yesterday with puts on the S&P 500 (through NYSE:SPY) and the Russell 2000 (through NYSE:IWM). I am also looking at the VIX which seems to be finding support at 24%. I may look to be long volatility through NYSE:VXX should we rollover at some point.

Another short position I am looking at is Tesla Motors (NASDAQ:TSLA). Telsa had its initial public offering two weeks ago to much fanfare and enthusiasm. The stock jumped over 100% in the first two days of trading before fading aggressively falling over 50% back below the $17 IPO price. After bouncing back from $15, TSLA found some selling at $18 and is now trying to hold the $17 level. I am short against $18 and looking for much lower prices. There seems to be a ton of sellers in this stock. The company is valued at $1.6 billion at current prices yet has never turned a profit! While there has been some enthusiasm that Tesla may work with Toyota (NSYE:TM) to create some prototypes, TSLA has a long way to go until it sees profitability. I am unconvinced after selling 1,000 of its electric sport cars for $109,000 each that Telsa can rapidly adjust its production to affordable sedans that will sell. (As a side note, for some traders, I do think a pair trade of long AONE, short TSLA is a very interesting play on the electric car recent IPO space.)

Disclosure: Long puts on SPY, IWM. Short TSLA. Long AONE.
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