Staid and stodgy Alcoa (AA) is trying real hard to turn into a growth stock. The company has been grabbing investors’ attention lately as we head into next week’s earnings season.
Alcoa recently announced that it was spending $40 million to expand its rolling mill in Brazil, boosting production of specialty aluminum foils for packaging and the big institutional money if piling into the stock in anticipation of improvements in the global economic recovery.
They are buying in anticipation of improvements as none of this has shown up in the fundamentals of the company year. The stock still gets a fundamental grade of F from Portfolio Grader right now.
However, the buying interest generated from Alcoa’s moves gives it an A quantitative grade and the combined grade pushed Alcoa stock to an upgrade to a buy.
If the company begins to see the type of improvements analysts are projecting this stock could quickly become an across the board A rated strong buy this year. The first quarter reporting next week may not show much improvement as analysts are looking for a 4.2% year-on-year drop in sales and a 54.5% plunge in earnings.
Looking further out however expectations are for a sharp improvement with earnings gains of 42.9% and more than 9% for the full year 2014. In 2015 the Wall Street analyst community is expecting earnings to explode by almost 70% year over year. Over the next five years the consensus is for earnings to grow by an average of 32% annually as the global recovery continues and strengthens.
If Alcoa can hit these targets the stock will see its fundamental grade improve and the stock will be upgraded to a strong buy.
Using Portfolio Grader you can see the analysts and large investors become bullish about the prospects for a turnaround at the aluminum company. For much of 2013 Alcoa stock languished as business was so-so and no one cared. Portfolio Grader ranked Alcoa stock as D, or sell.
As we got closer to year end, the big funds began to position for 2014 and started nibbling on shares of Alcoa stock. The stock was upgraded to hold in November as the buying pressure was noticed by Portfolio Grader.
As we entered the 1st quarter of this year analysts began to raise their estimates for 2014 and the buying pressure really began in earnest. This week we have raised the rating once again to B and Alcoa stock is actually a buy going into earnings season.
The stock needs to see a dramatic improvement in the fundamentals to become a “strong” A rated buy stocks. Wall Street analysts and the big institutional money seem to think that is exactly what will happen, and we are bullish on Alcoa stock.