3 Noteworthy Trends to Start Earnings Season

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Earnings season has unofficially begun with the announcement of Alcoa’s quarterly report, and already we saw some exciting volatility on Tuesday, but are any of these stocks a post-earnings “buy”? In this piece, I am looking at the quarters from four companies, and determining if the movement presents value or a value trap.

Post-Earnings Volatility at its Best

To the naked eye, WD-40’s (NASDAQ: WDFC) Tuesday loss of 0.99% does not qualify as “post-earning movement,” but when you consider its early gains of 10%, you can see that the movement is significant.

WD-40 crushed expectations, beating on both the top and bottom line with sales growth of 7% year-over-year and net income growth of 12% in the same period. Therefore, margins also increased, but in addition, the company boosted its full-year revenue and EPS expectations for the year; significantly higher than the consensus.

So, why did the stock fall from gains of 10% to a loss of 1% throughout the trading day? Honestly, there is no answer to this question; it was an illogical trade as investors took profits. Personally, I love this stock. It is a non-cyclical company that is growing several times faster than GDP, returning a yield over 2%. Hence, I used the pullback as an opportunity to add the stock to both my portfolio and my Motley Fool CAPS.

Great Synergy Creates an Undervalued Stock

Much like WD-40, Wolverine World Wide (NYSE: WWW) lost early gains throughout Tuesday’s trading session, but still managed to produce a gain of 3.8% after earnings.

The shoe company significantly beat on the bottom-line with an EPS of $0.46 (beat by $0.12) but then slightly missed on the top-line. The company reaffirmed its revenue guidance, which was in-line with expectations, and represents a 70% gain over 2012.

Wolverine is a company that is growing rapidly, due to the acquisition of PLG, but is still producing “core” growth of 5% year-over-year. The company’s acquisition of PLG looks to have great synergy and has created a company that is trading at just one times 2013’s sales, with a forward P/E ratio of 17.5. Thus, I think Wolverine is cheap, and I really like it at current levels.

What would an earnings assessment from Tuesday be without the inclusion of Alcoa (NYSE: AA)? Like most quarters, Alcoa traded flat, continues to trade as dead money, and posted a mixed quarter.

The company reaffirmed its guidance, and indicated that the price of aluminum has declined 4% year-over-year. Thus, there was nothing too exciting about the quarter. However, Alcoa is an exciting earnings report because they give a great conference call and can guide you into other strengths of the market, where the company sees high demand.

According to Alcoa, both the auto and airplane markets are performing “particularly” strong, which could bode well for companies that operate in the space. This indicates that companies in these two segments require more aluminum, and are building products faster. As an investor, airplanes and autos is how I’d play Alcoa’s earnings, and I wouldn’t think of buying a company with absolutely zero excitement like Alcoa.

Final Thoughts

Sometimes, there is more to earnings than what meets the eye.

Alcoa let us know that strength exists for auto makers and airplane stocks, while Wolverine confirms suspensions and channel checks that the shoe market has been on the rise.

WD-40’s performance might fly under-the-radar, but by all accounts is performing very strongly and could very well trade higher following its illogical post-earnings volatility.

Hence, while the first day of earnings season was somewhat quiet, it was a good start to what’s sure to be an interesting season. As a result, I consider each of these moves noteworthy to say the least. 

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Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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