Alcoa (NYSE:AA) didn’t beat earnings expectations. It came in with a $0.01 profit after charges, instead of the $0.05 that analysts were expecting. That’s a big miss, and I’m surprised, especially since reported revenues ($5.43 billion) were better than expected ($4.86 billion).
Alcoa CFO complained that the company was hit with $65 million in power costs and currency losses and another $250 million in acquisition related charges. Even so, Alcoa was never going to meet earnings on the expected revenues. Given that revenues showed healthy improvement due to increased demand and prices for aluminum, I can’t help but wonder of Alcoa’s miss is its own fault.
*****Investors don’t seem to see any such distinction this morning. Stocks are selling off because this is not the start to earnings season they expected. But don’t ignore the news that China is raising deposit requirements for banks.
The increase is just 50 basis points, which is not a lot. But the move suggests that China’s government is more concerned about the possibility that increased lending is creating asset bubbles, especially in real estate.
The China bears will say this is clear evidence that China recognizes it is has bubble problems. They might be right. But it could also be that China is simply reversing some of its stimulus actions now that its economy has stabilized and domestic demand has improved. After all, China does not let politics to get in the way of policy decisions.
In the words of Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co. in Hong Kong: "This series of moves by the central bank provides a clear sign that policy makers are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset price bubbles…"
I still get the feeling that many Western analysts still view the Chinese as yokels when it comes to economic matters. Certainly, managing the demands of such a large and diverse economy is no simple task and it’s easy to wonder if China’s government isn’t sometimes in over its head. But this isn’t the first time China has been called a bubble, and the Chinese have proved adept at managing their economy. That’s why I’ve started to call the country China, Inc…
*****China runs more like a for-profit corporation than most investors want to admit. And while there are always risks, I haven’t sold any of the Chinese stocks I’m holding in the SmallCapInvestor PRO. That’s because I remain bullish on China, Inc.
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*****Dale writes: I took your advice one day late and bought MPG at $1.86. I know it went up over 20% the day before and now it is back to the value that I purchased it at, I thought your advice was this stock could hit $2.50 but after going back through your e-mails I did not see it. My direction is now to wait until it hits the $2.00 mark and then sell or possibly buy more when it hits the $1.50 mark and sell at $1.86, any takes?
Sure Dale, I’ve always got a take. Maguire is a risky stock. As a commercial real estate company that’s still underwater on a few properties, there is risk that it won’t be able to refinance its debt or sell assets to get back on its feet.
The flipside is that Maguire has already walked away from a couple properties and is committed to not throwing good money after bad on underwater mortgage debt. In other words, it’s playing hardball. Banks don’t want the property, so I believe Maguire will be able to refinance debt at some point.
Now, it’s never fun to buy a stock after a decent move and watch it retreat. In some cases, it makes sense to lower your dollar cost by buying more of the stock at a lower price. But I don’t think that’s the way to go with Maguire.
Sure, if things go right for the company, the stock will do a lot better than $2.50 a share. But there’s no guarantee. A better way to play it would be to wait for some news that points to a fundamental change for the company and then buy as the stock starts moving higher.
Any more questions or comments? Write to me at [email protected].