Alcoa, the world’s largest producer of aluminum, is one of this year’s worst performing stocks in the Dow Jones Industrial Average. Currently riding a six-day declining streak, a falling price of aluminum, growing fears of further loss of demand for aluminum products in Europe, Alcoa’s weekly chart is displaying a pronounced bearish trend. Price action could find support at the $8.00 price level, but it is not out of the question to see a retest of the $4.97 record low from March 6th, 2009. When prices stabilize, value investors will start to find these levels very attractive.
Alcoa’s October 11th earnings report for the third quarter disappointed, but did have some signs that could suggest a positive rebound in the stock for 2012. Earnings printed at 15 cents a share, well below expectations of 21 cents a share, which was already reduced from the preliminary forecast in July of 37 cents a share. Earnings were also higher than the second quarter’s 9 cents per share. Revenues rose to $6.42 billion from $5.28 billion a year ago and exceeded expectations of $6.22 billion.
In multiple interviews, Alcoa CEO, Klaus Kleinfeld has confirmed his upbeat growth forecasts for demand to remain strong till 2020. This year, worldwide growth is expected at around 12.0% (China’s part at 17%). Current strength in demand is coming from the auto industry.
Most of the recent decline over the past six days is reflective of the massive selloff in equities globally and the expected continuation of the industrial economic slowdown. While the global markets remain ominous, this large-cap value company could provide investors with a solid value investment.
Long term investors could enter 25% of a position near current market levels. If weakness continues, add 50% to your position at the $7.86 level. Depending on how price action behaves will determine if we recommend adding the remaining 25%. If we see a strong rebound prior to any significant weakness, we will add to our position. Stops will be determined in the future based on price action. Long term targets include the $14 and $18 levels.