Alcoa, Chevron and Progressive Kick Off New Earnings Season

July 7, 2009

This week marks the beginning of second-quarter earnings season and I wanted to give you a preview of what to expect. I often refer to earnings season as Judgment Day for Wall Street. This is when we find out who's been raking it and who's been spilling red ink.

The second-quarter earnings season will also be important because we might see the first signs that the recession has bottomed out. I'm not saying things will be rosy, but we may no longer see the massive losses that plagued us during first-quarter earnings season.

Don't Even Think of Buying Alcoa

The earnings season will be kicked off Wednesday after the market closes when Alcoa (AA) reports on its earnings from April through June. I'll warn you now not to go near this stock. I have Alcoa rated as a Strong Sell.

This has been a great environment for commodity stocks, but Alcoa has not been delivering the results. The company has now missed its earnings forecast for the past three quarters, and it has actually lost money for the last two quarters. My advice is that earnings misses are like cockroaches: There are plenty more for each one you see.

The consensus on Wall Street is that Alcoa will report a loss of 34 cents a share. That's a huge turnaround from the 66-cent profit from a year ago. Even If Alcoa manages to top the Street's estimate, the company will most likely report another loss – and it will probably continue to report losses for the rest of the year.

If you own Alcoa, get rid of it now!

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Chevron Is a Sell

On Thursday, the next big stock to report earnings will be Chevron (CVX). This stock isn't in quite as bad shape as Alcoa, but again, I recommend you sell the shares. I'm expecting a big earnings decline from Chevron.

For last year's second-quarter, the company netted $2.90 a share (which was below estimates). For this year's second quarter, I doubt they'll be able to reach half of last year's haul. At most, Chevron will bring in $1.30 a share. Don't be fooled by the stock's low P/E ratio. Sometimes there's a good reason why a stock is going for such a cheap price. My advice: Stay away from Chevron.

By the way, I'm not against all oil stocks. In fact, two that I like right now are Nordic American Tanker Shipping (NAT) and Interoil (IOC). Both stocks, however, are based outside the United States which is a good reason for Americans to own their shares. I also like that Nordic American Tanker pays a generous dividend.

Progressive Is a Hold Though It May Be a Buy Again Soon

Finally on Friday, Progressive (PGR) will report its second-quarter earnings. This is the auto insurance stock. The company has had a lot of success with its recent ad campaign featuring Flo, the saleslady. I used to have this stock rated as a Buy, but I've recently downgraded it a Hold. Progressive is a good company, but I want to see how this earnings report shakes out.

What concerns me is that Progressive's earnings have started to decline over the past few quarters. The most recent earnings report, however, was very good. Earnings-per-share were up more than 31% from a year ago.

However, this could be an aberration instead of a trend. That's why I want to see more evidence before I call Progressive a buy again. If you don't already own shares of Progressive, let's hold off on building a new position for right now. Still, this is a quality stock to keep your eye on.

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