Alcoa Stock Up After Earnings – Too Early to Say ‘I Told You So’?

by Jeff Reeves | January 9, 2012 5:10 pm

best stocks for 2012 logo1 Alcoa Stock Up After Earnings   Too Early to Say 'I Told You So'?[1]Alcoa (NYSE:AA[2]) reported a quarterly loss in its fourth-quarter earnings on Monday afternoon. However, the loss was expected after last week’s headlines about one-time restructuring charges at Alcoa[3], and AA stock rallied across Monday in anticipation of the report and tacked on a bit more after hours as a result.

Not to crow, but that’s just as I expected. Last week, I told you Alcoa stock was a buy[4] despite the headlines — and the stock is up about 3% in two days as a result, and ready to tack on some more profits at the opening bell.

Alcoa also is up almost 10% since New Year’s Day, showing that — so far — it deserves my call as one of the top 10 stocks to buy and hold for all of 2012[5].

Now that I have the chest-thumping out of my system, allow me to turn to the matter I know you are most likely interested in: whether Alcoa remains a buy, and whether you should jump in.

Your answer: Jump in. With both feet — right now.

Here are the details on Alcoa’s earnings: AA met Wall Street’s expectations on the profit side (or lack thereof, considering the 3-cent loss on the quarter), and revenue was above analyst forecasts. Alcoa revenue hit $5.99 billion, an increase from $5.65 billion a year ago. Forecasts were for just $5.7 billion.

This gain should not have surprised you if you’ve been watching Alcoa’s numbers lately. This marks the eighth consecutive quarter of year-over-year revenue increases for the aluminum giant. And while the -3 cents on the quarter is a bit of black eye, keep in mind that the aforementioned restructuring will help Alcoa remain competitive in the long term. And despite that setback, earnings still managed to soar 270% over full-year profits for 2010.

The fundamentals of Alcoa are improving, and the company remains on the rebound. A slower global economy has hurt aluminum demand in industries ranging from construction to durable goods to automobiles, but AA is streamlined and prepared to profit in this environment — and ride the recovery when it takes shape. That makes it a great buy-and-hold investment for 2012.

Before I stick my foot in my mouth up to the ankle, I must concede that a long-term play in Alcoa is like buying a fixer-upper home. Sure, if you get the house in order, you just got yourself the bargain of the century — but what if you discover there’s more at play here than threadbare carpets and outdated bathrooms? What if there’s termites or a leaky foundation that mean your “bargain” home is really a money pit?

This is assuredly a risky play. And I have made my share of bonehead calls on risky plays[6], believe me. Those with a good memory will remember me patting myself on the back when Bank of America (NYSE:BAC[7]) hit $14 in 2011… and we all know how that ended up months later.

But I remain convinced that over the long term, there is a lot of upside and limited downside in Alcoa. Most of my arguments in my initial recommendation for Alcoa[8] in December are valid — and have only been reinforced by this latest earnings report.

Granted, there are 357 days left in 2012 — so I am counting my chickens before the eggs are laid, let alone hatched.

But I remain convinced that Alcoa is a great buy for the long term, and investors should have even more confidence in this stock after earnings.

Full disclosure: I did indeed put my own money in this stock, too, as a way to put my money where my mouth is with this Best Stocks of 2012[9] contest. I purchased 540 shares of AA stock at $8.95 on Dec. 14. I hope that adds a bit of realism to my commentary on the stock across the year!

Jeff Reeves[10] is the editor of InvestorPlace.com. Write him at editor@investorplace.com[11], follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

Endnotes:
  1. [Image]: http://investorplace.com/best-stocks-for-2012/
  2. AA: http://studio-5.financialcontent.com/investplace/quote?Symbol=AA
  3. restructuring charges at Alcoa: http://investorplace.com/2012/01/alcoa-aa-could-report-fourth-quarter-earnings-loss/
  4. Alcoa stock was a buy: http://investorplace.com/2012/01/alcoa-aa-still-best-stock-for-2012/
  5. top 10 stocks to buy and hold for all of 2012: http://investorplace.com/best-stocks-for-2012/
  6. I have made my share of bonehead calls on risky plays: http://investorplace.com/2011/12/investorplace-editor-best-worst-stock-picks-of-2011/
  7. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  8. my initial recommendation for Alcoa: http://investorplace.com/2011/12/alcoa-aa-stock-limited-downside-high-upside-stocks-to-buy-in-2012/
  9. Best Stocks of 2012: http://investorplace.com/best-stocks-for-2012/
  10. Jeff Reeves: http://investorplace.com/2012/01/2012/01/2011/12/alcoa-aa-stock-limited-downside-high-upside-stocks-to-buy-in-2012/2011/12/2011/12/investors-can-learn-from-denver-broncos-tim-tebow/2011/12/gold-prices-new-record-2012-buy-gold/2011/12/2011/12/2011/11/2011/11/2011/11/market-rally-bank-stocks-financial-sector/2011/11/3-dividend-commodity-stocks-vale-scco-si/2011/11/2011/10/optimism-about-europe-debt-resolution-a-risk-to-market-rally/2011/10/2011/10/2011/10/no-bear-market-for-5-funds-etfs-slv-gld-thd-xrt-fdn/2011/10/author/jeff-reeves/
  11. editor@investorplace.com: mailto:editor@investorplace.com

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