When you think of aluminum and metals stocks, you almost instantaneously think of Alcoa, Inc. (NYSE: AA). That’s because the Dow component is the world leader in the production aluminum and alumina. Alcoa makes metals used in countless industrial and household products, from aircraft to autos to construction. The ubiquity of aluminum makes Alcoa a great barometer of virtually the entire global economy.
Since the end of the Great Recession, the performance of AA stock has been stellar. Acloa is up 129% over the past two years, and so far in 2011 the shares are up 10%. And though there was a selloff in AA between mid-February and mid-March, the latest move by the industrial giant’s shares has been decidedly higher. So, will Alcoa continue demonstrating its mettle to investors, or is it time to put AA stock in the tin can? Here are the pros and cons of Alcoa stock.
Pros for Alcoa Stock
Aluminum prices and demand: Alcoa’s primary metals division produces the aluminum that’s sold to industrial customers, aluminum traders and on commodity markets. This is the core business for Alcoa, and its success is directly tied to aluminum prices. That metric increased 13% in 2010 on strong demand, and with demand for aluminum anticipated to increase by about 10-15% in developing nations in 2011, it could be another big year for AA stock.
Improved debt picture: The debt rating for Alcoa (NYSE: AA) was recently confirmed at the investment grade level of “BBB-”by Fitch Ratings. The agency also raised its rating outlook to “Stable” from “Negative.” Fitch analysts said Alcoa’s debt should fall by the end of the year as earnings and cash flow generation continues to improve. Fitch’s “Stable” outlook indicates that Alcoa will have sufficient cash to repay its current debt.
Strong rebound following a pullback: Alcoa shares suffered a bout of selling in mid-February, after events in the Middle East and Japan provoked a scare throughout the financial markets. Since then, however, the shares have come back strong, and they’ve once again moved above their short-term, 50-day moving average, a technically bullish sign for the stock going forward.