For Alcoa (AA) investors, a flat day was not what they had hoped for after the company announced its first-quarter results yesterday evening. But for the broader-market S&P 500 (^GSPC 0.02%), Alcoa's report was exactly what investors needed to hear, with so little in the way of economic news on the table through the first two days of this week.
The first quarter certainly won't go down in any record books for the aluminum giant. However, that didn't stop it from surpassing Wall Street's EPS expectations and holding to its 2013 forecast, which calls for an increase in global demand of 7%. Pricing of most metals, aluminum included, remains a sticking point, yet Alcoa's figures are good enough to merit the assumption that global demand may be on the precipice of a rebound.
High off that earnings buzz, investors drove the S&P 500 higher by 5.54 points (0.35%), to finish at 1,568.61, just a few points from another all-time record close. If you think this move higher was solid, then you haven't seen anything yet based on the moves higher of today's best performers.
The big gainer of the day was domestic solar-panel producer First Solar (FSLR -1.46%) which skyrocketed -- and I do mean skyrocketed -- 45.5% after announcing its 2013 fiscal guidance and providing a rough outlook through 2015. For 2013, First Solar is forecasting revenue of $3.8 billion to $4 billion on EPS of $4 to $4.50, which is well ahead of the $3.17 billion and $3.60 consensus on the Street. First Solar's 2014 forecast of $2.50 to $4 in EPS and a midpoint of $3.75 billion in revenue was in line with to slightly above expectations. Finally, its 2015 projections of $4 to $6 in EPS on $4.2 billion to $4.8 billion in revenue blew away current estimates calling for $3.37 in EPS and $3.7 billion in revenue. Clearly, the role reversal away from low-cost Chinese manufacturers to higher-efficiency, lower-debt domestic manufacturers is well under way.
The other two top performers rallied squarely on the heels of Alcoa's results.
Iron ore and metallurgical coal miner Cliffs Natural Resources (CLF -1.24%) jumped 8.8% following Alcoa's market-beating results and optimistic global forecast. I've been upbeat about Cliffs' prospects, given the rebound we've witnessed in iron ore prices, as well as the expectation that China's demand for steel and other metals should pick up as it expands its energy and transportation infrastructure. At less than 9 times forward earnings and with a yield above 3%, Cliffs offers plenty of reasons (i.e., growth opportunities overseas) to be excited about its future.
Steelmaker U.S. Steel (X -3.53%) was another beneficiary, advancing 4.4% on the day. However, unlike Cliffs, which I think has a strong chance to rebound, I'm not nearly as enthusiastic about U.S. Steel, which boasts nearly $3.4 billion in net debt and is a very heavily shorted stock. There are other strong options in the steel sector that have far less debt to contend with, and I'd suggest not being tempted by today's rally in spite of Alcoa's strong results.
