Four Stocks to Lift Your Spirits

 | Jul 21, 2014 | 6:33 AM EDT
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The commonality of success is now coming through loud and clear. We are now seeing and refining what buyers are looking for before they are willing to pay up beyond the last sale. It's a convincing formula and I will use four strong companies to lay it out: Alcoa (AA), Intel (INTC), PPG Industries (PPG) and Honeywell (HON).

First, the obvious. Each company in its earnings release makes it very clear that there was a clean beat in the top and bottom lines. The magnitude of the beat varies, but it is certainly better than what the high analyst was looking for. Unlike previous earnings periods, you need both sales and earnings to surprise -- we have been content for a while with just earnings. Plus, you have to have a noticeable percentage of the sales increase that is above what the street was looking for come from an ORGANIC base -- meaning new products that didn't exist until very recently.

Alcoa, for example, introduced lithium composite aluminum, which is stronger and lighter and ideal for aircraft. PPG introduced some coating upgrades that the highest-end German auto manufacturers seemed to crave. Intel created some form factors that rather clearly blew away the competition, the now wilting Advanced Micro Devices (AMD). Honeywell crafted some new solutions for the refining of oil and gas that seemed to have had a real impact on its UOP division -- the part of the company dedicated to getting as much refined product as possible out of a barrel of any kind of oil.

Second, in the conference call, right before the Q&A, management had to issue a significant enough guide-up that the low-end of the range had to advance more than just a penny or two. The higher end didn't necessarily need to come up -- which leaves room for upside -- but it could be strongly hinted at via a discussion of the "progression" of the quarter, meaning that at some point management had to say that things were getting better as the quarter went on. That's code for "there's earnings momentum occurring, but we will leave that to you to ponder."

In each case there has to be a transformed or stand-out geographic area or division. For Alcoa it was trucks, just a very big increase in truck sales, giant users of aluminum. For PPG it was all about Europe and a turn there, as well as a big paint acquisition in Mexico that sounds like it is state-of-the-art and peerless. Intel talked directly about a turn in personal computer sales at the enterprise, and, perhaps more important, made it clear that it expects a better holiday season. Honeywell's really at the heart of the oil and gas revolution in this country as we begin to build new kinds of refinery to get new fuels out of different grades of crude.

Bob Dylan may be right in that you don't need a weatherman to tell which way the wind blows. But all four companies gave you headwinds that are turning into tailwinds, which allows you to build a more positive model for 2015.

Alcoa's saying that non-residential construction is going from headwind to tailwind. PPG's chiming in similarly. Intel is saying that corporate spending on big data is indeed picking up and it's finally at the stage where it is impacting the company positively, after a negative impression for years. Honeywell's saying the worst may be over for its defense business -- a clue for others in a similar post-sequester situation.

Finally, there's the tone. In each case, the CEOs are saying "you know I was bearish or skeptical about a turn, but this quarter I have to tell you I can no longer be that pessimistic." That, above all, is the hallmark of a stock that's about to rally nicely.

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