Alcoa: Not a Buy

Posted Apr 13th 2010 3:40PM by Steven Mallas
Filed under: Earnings Reports, Alcoa Inc (AA), Commodities

Shares of aluminum entity Alcoa (AA) are not acting as a catalyst for the market today. If anything, they are probably bringing the mood of the traders in a downward direction. Pity, since the Dow hit 11,000 and all.

At the time of this writing, shares of the company were off by roughly 3%. Volume was high relative to the norm. The company's first-quarter earnings report is the cause of the selling interest. Of course, a sell-off can oftentimes be a nice opportunity for investors to get in on a stock; you always want to buy low and sell high, correct?

You have to check out the chart, though, especially if you're not looking to become a long-term holder. Alcoa is definitely one that never appealed to me on a long-term basis, so let me go to the one-year chart (you'll need to set the graph to the appropriate time frame).

Everyone infers different things from charts, but here's what this one is telling me: wait until Alcoa either gets back, or near, the 52-week high of $17.60 before considering a trade. That big spike to the right-of-center, in conjunction with today's price action, doesn't appeal to me. Plus, in my opinion, I would rather get Alcoa at a cheaper valuation and a more definitive margin of safety.

Yeah, with the Q1 sales miss ($4.89 billion reported vs. $5.29 billion expected), the in-line adjusted earnings of 10 cents per share, and today's trading action, I'm not in love with Alcoa's potential as an idea for the near-term. What would get me excited? A further drop, perhaps, one that brings the shares closer to the lower end of the 52-week range.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: AA, alcoa, Alcoa earnings, aluminum, inthenews