The news has been full of speculation about Alcoa’s second quarter earnings. Some speculated that the company would see earnings fall as much as 80%. It turns out that the company ran at a loss in the second quarter of this year. Aluminum prices are at all-time lows and one might believe that the picture for long term investment in Alcoa is pretty bleak. So much of the value of stocks and assessment of their prospects these days is tied to a possible Greek financial collapse followed by runs on banks and government defaults across southern Europe. However, the EU has not fallen apart yet. The Euro Zone seems to be coming around the view of the US Federal Reserve. More stimulus, even to the point of printing money and devaluing the Euro, may be the course for the Euro Zone. As weak as Alcoa’s balance sheet is at the present time, long term investment in Alcoa could be cheap to get into at the current time and profitable over the long term with a global economic recovery.
Planes and Automobiles
A bright spot in the current picture for Alcoa is that the US is manufacturing more cars and Boeing is still making lots of airplanes. These are profitable customers for Alcoa. In the event that prices go back up long term investment in Alcoa could profit from a surge in the businesses of making planes and automobiles. Before the recession this was a forty dollar a share stock and one of the bellwethers of the American economy. Long term investment in Alcoa was pretty much a long term investment in America. Now Alco is trading at $8 a share plus change. But as automotive and aerospace order rise the company may soon see profits again. More importantly as we see an end to strict Euro Zone austerity measures and a renewed effort to stimulate economies the price for aluminum products will likely rise and Alcoa’s fortunes with it.
Fundamentals versus Technical Aspects over the Long Term
The markets have been volatile ever since the onset of the worst recession in 75 years. Much of a stock’s price these days is determined by traders who only intend to own the stock as long as they can gain a small profit before getting out. The question for anyone interested in long term investment in Alcoa is this. What does fundamental analysis tell us? What is the intrinsic value of the stock and what is its margin of safety? Alcoa is the world’s third ranking producer of aluminum after Rio Tinto Alcan of Canada and Rusal of the Russian Federation. It operates in over 30 nations across the globe and aluminum products count for three-fourths of its revenue. Alcoa makes products for aircraft, automobiles, construction, the oil and gas industry, national defense, and industry. Its wide integration with the global economy has led to a downturn post-recession. Its position as an industry leader with global customers is a plus for long term investment in Alcoa as the global economy recovers. As always do your own fundamental analysis and only buy or sell stock when you understand what you are doing.