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Alcoa Shows Real Problem with Stocks

Alcoa has confirmed that the problem with stocks may be more about valuation than about fundamentals. CLSA put it simply after reviewing Alcoa's strong earnings: "We reiterate our Sell rating as we do not see upside from these levels."

In other words, valuation is the issue. You'd think the stock would have more room to move. AA said they see 12 percent demand growth for aluminum in 2011. There's clear evidence that aerospace and automotive — the two biggest customers — are improving. There's the imminent launch of an aluminum ETF.

But since the end of the summer, AA has moved 70 percent, far outpacing the 20 percent or so move of the S&P 500, and for the moment that may be the most important statistic.

Elsewhere:

1) All the European bourses are trading up this morning as Japan has joined China to announce they too will invest in Ireland and Portugese debt by purchasing EFSF bonds. Portugal, Spain and Italy will be selling debt later this week.

2) What to make of Dirk Meyer's surprise resignation from AMD, with CFO Thomas Seifert as interim CEO? Short-term, not good. Down 4 percent pre-open. CLSA said "the sudden departure of the CEO could cast doubts over AMD's new product momentum." Raymond James: "We are downgrading AMD to Underperform from Market Perform on the thesis that the company is now strategically in limbo amidst new computing announcements and partnerships that are fundamentally negative to the company's long-term growth and profitability."

The company also pre-announced Q4 revenues of $1.65 billion (vs. $1.62 billion consensus), with margins of 45 percent — slightly less than the 46 percent the Street was expecting.

Two big retailers gave commentary that were mirror images of each other.

3) Like its rival Liz Claiborne on Friday, shares of Talbots are being punished (down 22%!) after the women's apparel retailer slashed its Q4 earnings forecast. Blaming poor sales (down 7 percent) Talbots is now expecting a wider loss of $0.15-$0.19 vs. a loss of $0.02 consensus. But don't blame just the weather for the weakness…echoing Liz Claiborne last week, the retailer cites "weaker than expected customer response" to merchandise and increased promotions along with the snowstorms for the weak sales.

4) Tiffany rises 2 percent after boosting it full-year outlook — in yet another reaffirmation that the luxury consumer is back (recall strong December sales from Saks and Nordstrom last week). The jeweler said that worldwide comps rose 8 percent during the 2-month holiday period, led by a 15 percent rise in European & Asian comps and a respectable 8 percent rise in U.S. same-store sales. Full-year earnings are now seen between $2.83-$2.88 vs. $2.79 consensus).

5) SuperValu also under pressure (down 7 percent) after cutting full-year guidance ($1.25-$1.35 below $1.46 consensus) following a Q3 earnings miss ($0.24 vs. $0.31 consensus). The supermarket chain saw a 4.9 percent decline in comps due to "a continued challenging economic environment and heightened competitive activity," while margins were pressured from greater promotional activity.

Supermarkets' market share have been challenged by greater competition recently from low-priced discounters like Family Dollar and Wal-Mart . Even Target has aggressively remodeled many of its stores to accommodate a broader array of groceries — and last week, that was mentioned as one of its strongest drivers of sales in December.

6) Lennar rises 4 percent after Q3 earnings beat estimates ($0.17 vs. $0.03 consensus). Margins soared to 18% thanks to lower incentives despite flat home prices. However, deliveries fell 12 percent and new orders decreased 5 percent.

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