3 reasons to buy Alcoa

Signs point to a turnaround for the aluminum giant, showing potential as a good recovery investment.

By InvestorPlace Jul 13, 2010 3:18PM

By Jim Woods, InvestorPlace.com

 

It’s been a tough year for aluminum.  The spot price of so-called "primary aluminum" (99.7% purity) has fallen over -12% year to date, but that’s nothing when compared to the decline in the world’s largest aluminum manufacturer, Alcoa (AA)The Dow Jones component’s shares are down over -32% year to date, a decline that’s a clear reflection of fears of another leg downward in the global economy.

 

But investors should remember the old adage “buy low, sell high” when it comes to Alcoa stock. AA shares may have had a rough run lately, but there are signs pointing to a turnaround in the company soon. Here are three reasons why investors should consider Alcoa stock for their portfolios.

Alcoa Could Ride a Global rebound.  Times have been tough for the global economy.  Headlines blaring out about euro zone fiscal chaos, and the potentially adverse affect that will have on export dependent countries such as China have teamed up to create an aversion to global manufacturers such as Alcoa.  Economic data from around the world has been mixed thus far in 2010, but there is no real proof of a “double dip” in the works. If things remain soft, that sluggish trend is already baked into AA stock — but if we start to see a decided trend toward improving global economic metrics, it could do wonders for a stock like Alcoa.

 

Pent-up bullish demand for Stocks.  As we’ve seen so far in July, investors are starting to regain their appetites for equities.  Alcoa shares actually spiked about +10% from July 2 through July 9, a clear sign that bullish demand has found its way to the aluminum giant in anticipation of its earnings report. If this pent-up demand for quality manufacturing bellwethers continues, look for Alcoa to shares to get a lot more investor love.

 

Strong 2Q Alcoa Earnings: After the bell yesterday, Alcoa announced it topped earnings forecasts by a penny. That cheered up Wall Street and sent AA stock up in trading today after Alcoa earnings. Things are brighter looking forward for Alcoa after this earnings report, with the aluminum giant saying resilient demand should prompt a sales increase in the metal of +12% — significantly higher than Alcoa’s previous guidance of a 10% jump.

 

For more reasons to buy Alcoa stock, follow this link.

 

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