Alcoa kicked off earnings season last night, and its report landed with a thud. Today's column includes heavy options trading on Alcoa (AA) on Monday ahead of that report, a jump in put trading on Infosys Technologies (INFY) ahead of its earnings report, and news of new phones from Nokia (NOK). Each day, 3 Stocks to Watch focuses on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.
Alcoa Inc. (AA) posted its fifth net loss in the past six quarters after the close on Monday. The company posted a first-quarter net loss of $201 million, or 20 cents per share, compared with a loss of $497 million, or 61 cents per share, in the same quarter of 2009. The company reported a loss from continuing operations of 19 cents per share, while revenue rose to $4.89 billion from $4.15 billion. Excluding special items amounting to 29 cents, the company had a profit of 10 cents per share. That figure matched the consensus estimate, although Wall Street was expecting a more robust $5.238 billion in revenue.
The firm benefited from higher prices and said markets are improving, but Chief Executive Officer Klaus Kleinfeld also raised the possibility of strikes at its U.S. operations, and revealed Alcoa recently lost a major beverage can customer.
Ahead of the earnings report, options trading was brisk, as more than 227,800 contracts crossed the tape. This surge in volume was nearly four times the stock's average daily trading volume of 59,984 contracts, according to data from WhatsTrading.com. In addition, roughly 62% of the volume changed hands on the call side.
Yesterday's preference for calls runs counter to the recent trend on the International Securities Exchange (ISE). The 10-day put/call volume ratio comes in at 0.57, which is higher than 66% of all those taken during the past year, pointing to a rising skepticism.
Meanwhile, the Schaeffer's put/call open interest ratio (SOIR) comes in at 0.68, which is higher than 82% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 18% of the time during the past 12 months.
Short sellers have also increased their bearish bets against the shares. During the past month, the number of AA shares sold short increased by nearly 18% to 80 million, This accumulation of pessimistic positions accounts for almost 8% of the company's total float.
Finally, Wall Street has yet to jump fully on the stock's bandwagon. According to Zacks, the equity has earned eight "buy" ratings, seven "holds," and two "sells."
Technically speaking, the shares of AA are down more than 9% since the beginning of the year. The equity has recently rallied along the support of its 10-day and 20-day moving averages, but is likely to give these trendlines a good test today following the firm's lackluster earnings report. Additional support lies below the shares in the form of their 10-week moving average.
Infosys Technologies (INFY)
Infosys Technologies Ltd. (INFY) this morning reported a slight drop in its fourth-quarter bottom line, but issued a strong dollar outlook for the current fiscal year, indicating that a revival in India's outsourcing industry is continuing to gather momentum. Other signs of improving times included the addition of 47 new clients and the hiring of more than 9,000 employees.
Infosys' consolidated net profit in the three months through March was INR16.00 billion, down 1% from INR16.15 billion a year earlier, and compared with INR15.59 billion in the previous quarter. Consolidated revenue rose 5.5% to INR59.44 billion from INR56.35 billion a year earlier, and from INR57.41 billion in the third quarter. According to Indian accounting standards, net profit was INR16.17 billion, compared with INR16.13 billion a year earlier, on revenue of INR59.44 billion, up from INR56.35 billion. The average analyst estimate was for a net profit of INR16.03 billion on revenue of INR58.83 billion.
Infosys said it expects revenue of $5.57 billion-$5.67 billion in the current fiscal year which began April 1, up 16%-18% from the previous year. Earnings will likely be $2.40-$2.50 per American Depositary Share, up 4.3%-8.6%.
Put trading was heavy on INFY on Monday, as nearly 15,000 contracts changed hands. This surge in put trading was more than 19 times the equity's average daily put trading volume, according to data from WhatsTrading.com. However, only 28% of the volume changed hands at the ask price.
Meanwhile, the ISE reports an increase in put buying. During the past 10 trading sessions, 7.3 puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 79% of all those taken during the past year, pointing to a growing skepticism.
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