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Alcoa: Good Trade Today, Better Play Tomorrow


Despite the solid beat, consider company for the long term.

Asian stocks rose yet again. The Hang Seng and the Nikkei closed up 1.18% and 0.34% respectively. European stocks were in the green early this morning, too. And here in the US, we're currently trading higher.

Here's what I'm seeing this morning:

Alcoa (AA):
I hate to sound obvious because I suppose the headlines today will be filled with this information, but the the aluminum giant crushed expectations in its third quarter. Excluding items, it put up $0.04, which was way north of the $0.09 loss analysts were expecting. It beat on the top line, too.

Some thoughts:

1. I see a trade here today; it was a solid beat. In addition, the following line in the release left me optimistic too: "In the second half of 2009, there are signs that key markets the Company operates in are stabilizing. Due to low inventories at distributors and rising shipments, regional premiums are improving and global aluminum consumption is expected to increase 11% in the second half of 2009."

2. The company has the potential to return to profitability in 2010 as the Street expects. I don't want to rain on anyone's parade, but I feel the stock may be getting a bit ahead of itself at nearly 29 times the 2010 estimate.

3. Other than the possibility of a good trade here today, I'll view this as more of a long-term play. Once this excitement passes, some of the air could be let out of the balloon.

Hot Topic (HOTT):
The California-based retailer's September comps were off 4%. At first blush, that may not sound all that sweet. However, the performance was better than the 6.3% dip the Street had been expecting.

Some thoughts on the overall situation:

1. This doesn't mean the one-time retail darling is going to be on everyone's wish list for the holidays. But the better-than-expected result will certainly draw some eyes, and if it can put together a string of these beats, we could start seeing estimates come up and interest in the stock perk up.

2. Do I think the shares are worth a little nibble, given the result? I admit I'm tempted and would consider a taste. After all, its merchandise does remain popular among the younger crowd and I think comps will eventually bounce back in full force. Unfortunately, I don't have a clue as to when. But before I give it my heart, I'd like to see a couple of nice earnings beats. Keep in mind that it's only expected to put up $0.39 this year and $0.48 next year.

3. I see a trading opportunity here today, too.
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No positions in stocks mentioned.

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