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Is Alcoa Stock Still A Buy After 100% Rally This Year?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsSep 21, 2021 09:33AM ET
www.investing.com/analysis/is-alcoa-stock-still-a-buy-after-100-rally-this-year-200602476
Is Alcoa Stock Still A Buy After 100% Rally This Year?
By Investing.com (Haris Anwar/Investing.com)   |  Sep 21, 2021 09:33AM ET
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For Alcoa (NYSE:AA), the largest aluminum producer in the US, the past year has brought excellent gains. Demand for the commodity has been so strong that buyers from Asia to Europe line up for shipments, using it in the manufacturing of everything from beverage cans to airplanes and construction.

Demand for aluminum has nearly doubled over the past 18 months in a rally that’s totally changed the demand-supply equation for a long-struggling industry. With demand booming and production under pressure in top supplier China, buyers have no choice but to accept higher prices as the global economy reopens after year-long lockdowns.

For the Pittsburgh-based Alcoa, this sudden shift in demand pattern has been great. The company in July reported second-quarter earnings that beat analysts’ expectations. The company expects 2021 aluminum shipments of 2.9 million to 3 million tons, up from its earlier forecast of as much as 2.8 million.

Goldman Sachs in a recent note said it sees a multi-year bull market driven by aluminum’s central role in the transition to low-carbon energy sources. President Joe Biden’s infrastructure deal has also buoyed the outlook for US demand. Alcoa also said it expects continuing inflationary pressure on raw materials and energy.

But these bullish forecasts are already baked into the Alcoa stock price and a big question for investors is whether they have already missed the boat. Alcoa stock has lost more than 2% in the past weeks amid concerns that markets are in a dangerous territory and a big correction is just round the corner.

Alcoa Weekly Chart.
Alcoa Weekly Chart.

A plunge of more than 20% in US stocks is looking more like, a note from Morgan Stanley warned on Monday. The note said evidence is starting to point to weaker growth and falling consumer confidence, an outcome that will see the economy sharply decelerates and earnings get squeezed.

A Highly Cyclical Stock

Alcoa, being a highly cyclical stock, will certainly get hurt if these predictions prove true, after producing a remarkable rally since May 2020. With a beta of 2.7, Alcoa is a highly risky stock during this time of correction and should be avoided when markets enter a bearish spell. A beta bigger than 1 suggests that the stock is more volatile than the broader market, and a beta less than 1 indicates a stock with lower volatility.

But any correction at this stage, in our view, is a buying opportunity as there are many factors that could keep both aluminum prices and demand elevated.

North America’s largest aluminum conference, which ended Friday, also sent a similar message where producers, consumers, traders and shippers said supply-chain snags are unlikely to ease soon.

Bloomberg reported from the conference:

“Snarled supplies will continue to dog the industry through most of 2022, many conference participants said, with some projecting it could take as long as five years to resolve the issues.”

Bottom Line

Aloca’s current price, in our view, reflects the gains from a highly favorable demand-supply scenario for the aluminum giant. However, a correction in the magnitude of 15-20% will make this name attractive once again given the bullish outlook for aluminum in the next five years.

Is Alcoa Stock Still A Buy After 100% Rally This Year?
 

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Is Alcoa Stock Still A Buy After 100% Rally This Year?

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Comments (8)
Dan Heinze
Dan Heinze Sep 21, 2021 11:37AM ET
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Proof read your article. Spelling errors.
AL Khalil Djalal
AL Khalil Djalal Sep 21, 2021 9:53AM ET
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1😎
Brian Bodeman
Brian Bodeman Sep 21, 2021 9:53AM ET
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bull pucky
me ish
me ish Sep 21, 2021 9:47AM ET
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we're at the beginning of a commodities supercycle - hard money as opposed to the fluffy printed (digitally) fiat money that's just worthless (more by the day) - this pullback is the 1 to 2 on early Elliott wave before a far bigger move up.
Romeomakalicha Makalicha
Romeomakalicha Makalicha Sep 21, 2021 9:45AM ET
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I'm interested how do I join
Sk Tanweer Raza
Sk Tanweer Raza Sep 21, 2021 9:45AM ET
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wow its amazing
me ish
me ish Sep 21, 2021 9:45AM ET
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I'm happy for the homeless and poor folk who collect alu cans - I hope they can make some good money out of this - the amount of aluminium rubbish is astounding - we live in a totally f ct up society
Basher Basher
Basher Basher Sep 21, 2021 3:58AM ET
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abulbasher
Lyvannakagency Lyvannakagency
Lyvannakagency Lyvannakagency Sep 21, 2021 3:52AM ET
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593235
 
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