Stocks to Sell #5: Alcoa (AA)
Click to EnlargeAlcoa (AA) stock has had a great run since October, rising nearly 50% and climbing to its highest level since mid-2011. While this has provided value investors with some much-needed relief, the potential upside is limited from here given the continued weakness in aluminum prices, Alcoa’s declining earnings estimates, and the renewed downturn in the broader mining sector following the emerging-markets instability of the past week.
It’s possible that the problems in the emerging markets turn out to be nothing and global economic growth stays on its recovery track in the months ahead. Further, AA stock continues to look sound technically, having broken out of a broad base and finally seeing an upturn in its 200-day moving average. But with Alcoa already up so much in the past four months, the risk-reward equation has become much less favorable.
Let the stock take a breather here, and look to get back in at a more favorable price.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.