Alcoa's Results Disappoint

Alcoa's (AA) third quarter earnings missed expectations horribly, or by over 30%. Income from continuing operations came in at about $0.15 per share, while the Street was looking for $0.22 - and this estimate had come down significantly in recent weeks. We are maintaining our $11 fair value estimate for Alcoa and still believe that a good entry point is below $6 per share for the company, as we outlined in our previous note "Alcoa Has to Fall Much Further For Us To Get Excited." Though this means Alcoa has to drop significantly from today's levels, we think the application of a sufficient margin of safety and patience are two reasons for the meaningful outperformance of our Best Ideas.

Alcoa's revenue jumped over 20% on a year-over-year basis in the quarter, but fell 3% sequentially on weaker prices thanks to the well-publicized weakness in Europe and exp! ected lo wer metal prices during the period.

Though results missed the mark, the firm's end markets performed quite well. Revenue from commercial transportation increased 44%, automotive jumped 26%, while packaging and aerospace expanded over 20%, respectively. We think the results were particularly positive for expected third quarter performance out of the aerospace sector, and we continue to reiterate our best ideas in the space: Edac Tech (EDAC), Precision Castparts (PCP), and Astronics (ATRO). Alcoa also noted that revenue from aerospace, along with commercial transportation, increased sequentially. We also think the noted recovery in industrial turbine (IGT) demand revealed in Alcoa's earnings release is particularly positive for Precision Castparts, a maker of IGT castings. Aside from aerospace as a positive takeaway, the firm's cash flow continues to be robust, with Alcoa pulling in roughly $250 million through the first three quarters of the year. The firm is in much better shape than 2008.

Management had some cautious comments regarding the global economy (and Europe), but it reiterated its 12% growth estimate for aluminum demand in 2011, as well as its belief that global consumption of aluminum will double by 2020. We think these growth estimates are achievable and point to China (aluminum cans) and aerospace as the key drivers (particularly as narrowbody demand by Boeing (BA) and Airbus (EADSY.PK) ramps up in coming years). We don't view the introduction of mostly composite airplanes - 787, A350 - as a huge threat to these intermediate-term forecasts at this time. The company also raised its growth forecast for China by two percentage points this year. All things considered, we'd generally steer clear of the industrial and material space, but we are considerably overweight in aerospace, a bright spot in the sector. As for Alcoa, we remain on the sidelines and suggest Precision Castparts as the best play within metals.

Top 6 Stocks With Recent Analyst Upgrades

At Stockpickr, we track daily portfolios of stocks with analyst upgrades and analyst downgrades.

We also track the top 30 holdings of various professional investors, including Warren Buffett and George Soros, according to their most recent 13F filings with the SEC.

Today, we're taking a closer look at some stocks that have been upgraded by analysts or initiated with buy ratings recently that also show up in at least one of Stockpickr's professional portfolios.

Anadarko Petroleum

Anadarko Petroleum(APC) was upgraded to outperform from perform at Oppenheimer, with a $90 price target, following its recent settlement with BP (BP) over Macondo oil spill liabilities. Anadarko was gaining $2.18, or 2.9%, at $76.62 in recent trading.

As of the most recent reporting period, Anadarko comprises 0.7% of the portfolio of Bruce Kovner's Caxton Associates and 0.8% of Steven Cohen's SAC Capital portfolio.

Anadarko, which is engaged in the exploration and production of oil and natural gas, ha! s a mark et cap of $37.1 billion and a 1.9 short interest ratio, and it trades at a P/E of 44.3. The stock yields 0.5%. Of 23 analysts covering the Anadarko, 17 rate it a buy, and six rate it a hold. TheStreet Ratings has a B- buy rating on the stock.

Baker Hughes

Sterne Agee initiated coverage of Baker Hughes(BHI) with a buy rating and a $71 price target, citing the company's restructuring efforts toward a geomarket focus. The stock was up $1.53, or 21.9%, oat $54.97 in recent trading.

As of the most recent reporting period, Baker Hughes is one of the top holdings of Ken Heebner's Capital Growth Management and comprises 2.8% of John Griffin's Blue Ridge Capital portfolio.

Oilfield services company Baker Hughes has a market cap of $23.3 billion and a 1.5 short interest ratio, and it trades at a P/E of 17.6. The stock yields 1.1%. Of 22 analysts covering Baker Hughes, 18 rate it a buy, and four rate it a hold. TheStreet Ratings has a B- buy rating on the stock.

Broadcom

Societe Generale initiated coverage on Broadcom(BRCM) with a buy rating and a $41 price target, predicting continued growth from acquisitions at the company. The stock was gaining 84 cents, or 2.3%, at $38.17 in recent trading.

As of the most recent reporting period, Broadcom shows up in Citadel Advisors' portfolio, comprising 0.5% of the total. It also showed up on a list of Semiconductor Stocks Liked by Hedge Funds.

Broadcom, a provider of semiconductors for wired and wireless communications, has a market cap of $18 billion and a 0.8 short interest ratio, and it trades at a P/E of 21. The stock yields 1. Of 34 analysts covering Broadcom, 26 rate it a buy, seven rate it a hold, and one rates it a sell. TheStreet Ratings has a B buy rating on the stock.

Broadcom was featured recently in "5 Big Stocks to Trade for Gains."

Charter Communications

Credit Suisse initiated coverage of Charter Communications(CHTR) with an outperform rating and a $60 price target, citing improving fundamentals and solid free cash flow. Charter was up 66 cents, or 1.4%, at $49.66 in recent trading.

As of the most recent reporting period, George Soros' Soros Fund Management owned 844,840 shares of Charter, a 12.6% increase over its previous position.

Charter offers residential and commercial customers traditional cable video programming , high-speed Internet and telephone services, as well as advanced broadband services. It has a market cap of $5.4 billion and a 2.7 short interest ratio. Of five analysts covering the stock, four rate it a buy, and one rates it a hold. TheStreet Ratings has a D- sell rating on Charter.

National Oilwell Varco

Sterne Agee initiated coverage of National Oilwell Varco(NOV) with a buy rating and an $81 price target, predicting earnings growth over the next several years. The stock was recently trading up $2.10, or 3.4%, at $64.83.

As of the most recent reporting period, National Oilwell Varco shows up in T. Boone Picken's BP Capital portfolio, comprising 5% of the total. It's also a top holding in the portfolio of Ken Fisher's Fisher Investments.

National Oilwell Varco, a worldwide provider of equipment and components to the upstream oil and gas industry, has a market cap of $26.6 billion and a 1.9 short interest ratio, and it trades at a P/E of 15.3. The stock yields 0.7%. Of 17 analysts covering the stock, 15 rate it a buy, and two rate it a hold. TheStreet Ratings has a B buy rating on NOV.

VMware

Goldman Sachs placed VMware(VMW) on its Conviction Buy list, with a $120 price target. Meanwhile, Jefferies downgraded the stock from buy to hold, with a $90 price target. VMware was recently up $6.05, or 6.8%, at $95.57.

As of the most recent reporting period, VMware comprises 0.5% of Highbridge Capital Management's portfolio.

VMware, a provider ! of virtu al infrastructure software solutions, has a market cap of $37.7 billion and a 1.9 short interest ratio, and it trades at a P/E of 69.9. Of 31 analysts covering the stock, 16 rate it a buy, and 15 rate it a hold. TheStreet Ratings has a B buy rating on VMware, earning the stock a spot on its top-rated software stocks list.

VMware was included in a September list of 30 Top-Rated Fast-Growth Stocks.

hese Tobacco Stocks Are Big on Dividends

Here at the Fool we love our seasons: football season, flip-flop season, and our favorite, earnings season. It's that wonderful time of year when we get to celebrate those picks that outperformed, and be humbled by those that didn't.

Each quarter we get to arm ourselves with a new set of expectations and estimates to better judge the economic landscape. Taking the initiative to learn about the nuances for a given sector will place investors well ahead of many of their peers. Woody Allen put it best when he observed, "Eighty percent of success is showing up."

With that in mind, here is what you can expect to see out of some of the biggest tobacco companies this earnings season just by showing up and staying engaged.

Source: S&P Capital IQ.

Consumer goods companies tend to show remarkable resilience in tough times. During the depths of the financial crisis, the consumer goods sector hardly registered the news, falling only 16% from their 2008 high. Within this genre, there is a subsector that consistently rewards investors' portfolios with dividends and big gains: tobacco. Here is what to expect from everyone's love-to-hate industry this earnings season.

Company	Report Date?	Estimated Earnings	Earnings Estimate 90 Days Ago	Year-Ago Earnings?
Altria (NYSE: MO  )	Oct. 27	$0.56	$0.58	$0.54
Reynolds American (NYSE: RAI  )	Oct. 25	$0.73	$0.72	$0.68
Lorillard (NYSE: LO  )	Oct. 24	$2.03	$2.10	$1.80
Philip Morris International (NYSE: PM  )	Oct. 20	$1.24	$1.23	$1.00

Source: S&P Capital IQ.

An equally weighted portfolio of the companies listed above from Jan. 1, 2008, would have had a straight return of 61.6% today, mocking the S&P's -11% return over the same period. Their average dividend yield is an index-rocking 5.1% -- that's more than twice the S&P's 2.4% yield.

With such steady performance, investors should just don their bathrobes an! d contin ue collecting fat payouts, right? Wrong. Tobacco is a well-established, but still dynamic industry. There are some macro and micro developments I'm keeping my eye on.

First, the macro developments: Tobacco companies in the U.S. face highly regulated advertising criteria. Soon enough, pictures of a black set of lungs or cancer-ridden mouths legally must comprise 50% of the front and back of cigarette packs. There are mixed reviews about these graphics' effectiveness, but the message is clear, the U.S. is not the most promising market for these manufacturers.

Therefore, I'm looking abroad where smoking is generally more accepted. Take Philip Morris as an example. PM was spun off from Altria in 2008 to protect it from U.S. litigation and allow it to more effectively pursue international opportunities. From 2005-2010, Philip Morris' Latin American and Canadian segment posted a 116% gain in revenue, their Asian segment posted a 77% increase in revenue, and there is still room to grow. A Gallup survey estimates that a third of Chinese citizens smoke. Consider that Philip Morris' 2010 revenue from all of Asia was just over half that of the European Union revenue, despite a far larger population.

Secondly, I'm watching some of the smaller players in this industry, Star Scientific (Nasdaq: CIGX  ) and Vector Group (NYSE: VGR  ) . Star Scientific reported this little gem in its most recent financial statement:

ITEM 1A.?
RISK FACTORS
We have incurred losses for the past eight years and operating expenses are likely to continue to be greater than operating revenues in the foreseeable future.

Ouch. If management is correct and this trend continues, I'm bearish on these guys. Management is traditionally the rosiest predictors of future growth. If even they're bearish, what are we supposed to be?

Vector Group is showering shareholders with cash thank! s to its 8.6% dividend. That's right, 8.6%. Alas, some things really are too good to be true. In Vector's case, its dividend payout ratio is 167%, meaning it's paying out more in dividends than its earnings can support. This is an unhealthy habit that it has maintained for a surprisingly long time, but like smoking, it's likely to catch up with it in a nasty way. I'm combing its financial statement to see clear language about how to improve this ratio, or maybe even reduce its dividend; otherwise I'm bearish on these guys, too.

How to play earnings?
There is no right or wrong way to play earnings this season. When it comes to tobacco, though, you can be sure that I'm keeping an eye on those companies with forward-looking international growth, particularly in China and Latin America, and these two smaller companies mentioned. I'm not the only one who finds tobacco stocks compelling. Our own Motley Fool analysts have compiled a special free report that contains an exclusive buy recommendation on one of the stocks listed above. You can access the report, "5 Stocks The Motley Fool Owns -- And You Should Too," by clicking here while it's still available. Happy earnings season.