Ultra-trendy Tesla Motors Inc. has grabbed all the headlines over the past few months, but an investor would have done even better by loading up on boring old Alcoa Inc.
The aluminum giant jumped in trading Wednesday after reporting better-than-expected earnings. Its stock price has now nearly doubled over the past 12 months, which puts it solidly ahead of Tesla's mere 81-per-cent gain.
Both companies owe their recent success to the high-tech transformation of the auto sector. Tesla is benefiting from the popularity of its luxury electric vehicles. Alcoa is cashing in on car makers' increasing use of lightweight aluminum parts.
Despite the common ground, Alcoa's influence on the broad stock market is likely to be larger than Tesla's. The aluminum producer is regarded as a bellwether stock and its earnings have historically been looked to as a leading indicator of economic growth.
While that linkage hasn't really held true in recent years because of a massive oversupply in the aluminum business, Alcoa's rebound over the past few months does suggest that its bellwether reputation could once again be deserved.
Among other things, its comeback underlines the stealth rebound among commodity producers, who suffered a miserable 2013 but are now clawing their way back to respectability. Materials and mining stocks have outperformed the broad S&P 500 index over the past year.
What other trends are emerging this earnings season? Every investor will have his or her own list of potential bellwethers, and the list is likely to change from one earnings season to another, but here are three companies that might merit extra-close attention in the weeks ahead.
Sotheby's (BID-N): There's no surer indicator of the state of the global luxury economy than Sotheby's, which auctions fine art and expensive wine with a sideline in peddling millionaires' real estate. Over the past two decades, the company has been an excellent gauge to market exuberance – it tends to shoot upward far more than most stocks during bubbles, then turn tail before the broader market.
Sotheby's, which reports on Aug. 6, has fallen about 16 per cent this year. A disappointing earnings report, followed by a further decline in its share price, could herald problems ahead for the broad market. On the other hand, a strong report would go a long way to assuring investors that wealthy buyers – especially in China – are still the driving force they have been in recent years.
Sturm Ruger & Co. Inc. (RGR-N): In a stock market where just about everything is expensive, Sturm Ruger looks like a value investor's dream. It trades for about 10 times earnings, delivers a dividend yield of more than 3 per cent, has no long-term debt and has enjoyed healthy sales gains in recent years.
The downside? Sturm Ruger makes handguns, about the most socially objectionable product one can imagine. In addition, its rival, Smith & Wesson, recently warned that Americans are buying fewer firearms.
All of that makes Sturm Ruger a risky stock despite its apparent cheapness. If the shares begin to rise from here, it's a sign that investors are still in a bullish mood and willing to reach for yield just about anywhere.
Facebook Inc. (FB-N) No company sums up the high hopes around social media better than Facebook, a company with soaring revenue growth and a stock price to match.
The shares went on a tear in the middle of last year but have plateaued since the middle of February as investors question whether Facebook can continue to generate the momentum needed to justify its share price.
When it reports earnings on July 23, investors will be looking closely at its user growth as well as its mobile ad business and efforts to appeal to small business marketers.
Analysts are overwhelmingly bullish and forecast sales will jump about 50 per cent from the same period a year earlier, while earnings per share nearly double.
Beating those lofty expectations would stoke the fire under the social media sector. A miss would throw cold water on it.
Ian McGugan