Alcoa (AA) just hasn’t received respect over the past several years. This is in the process of changing today, and AA has the potential to continue its rally to the low $20s from $12-$13. AA morphed into a classic out-of –favor stock since the financial crisis but lackluster stock performance created value amidst horrible sentiment. The stock moved sharply over the past 6-months, rising from $8 (where it traded give or take for 5-years) to $12. Alcoa reached $40 pre-financial crisis and the shares were never permanently impaired by a meaningful amount of distressed equity issuance – one crude measure to demonstrate upside. Pre-crisis, times were different, with a more consistent appetite for commodity exposures in an environment of rising commodity prices. Contrast to recent developments: Commodity exposures have been brutal based on: China slowing No growth in Europe Still no growth in Japan Global deflation Tepid end market demand AA’s end markets are under-appreciated; the valuation of the shares declined on an EBITDA and FCF basis as metals end-markets were to be avoided, AA received credit downgrades (because of weak commodity prices not from taking on more debt) and ultimately, AA got booted from the Dow Jones Industrial […]
Alcoa (AA) just hasn’t received respect over the past several years. This is in the process of changing today, and AA has the potential to continue its rally to the low $20s from $12-$13. AA morphed into a classic out-of –favor stock since the financial crisis but lackluster stock performance created value amidst horrible sentiment. The stock moved sharply over the past 6-months, rising from $8 (where it traded give or take for 5-years) to $12. Alcoa reached $40 pre-financial crisis and the shares were never permanently impaired by a meaningful amount of distressed equity issuance – one crude measure to demonstrate upside. Pre-crisis, times were different, with a more consistent appetite for commodity exposures in an environment of rising commodity prices. Contrast to recent developments: Commodity exposures have been brutal based on: China slowing No growth in Europe Still no growth in Japan Global deflation Tepid end market demand AA’s end markets are under-appreciated; the valuation of the shares declined on an EBITDA and FCF basis as metals end-markets were to be avoided, AA received credit downgrades (because of weak commodity prices not from taking on more debt) and ultimately, AA got booted from the Dow Jones Industrial […]