Alcoa Signals Better Quarters Ahead for the U.S. Economy?

Further, U.S. auto sales are likely to rise 10% to 12% in 2011, and the U.S. housing sector could squeeze-out a modest rise in new home sales, if an expected better, second-half performance materializes. Each of the aforementioned is good news for aluminum sales and Alcoa. Another positive: the price of aluminum should rise in 2011 on adequate global demand and falling inventories.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for AA are $1.29 to $1.60.

Technically, one could argue that, at roughly $16, AA has already notched an impressive gain, having bottomed slightly below $10 last summer. A legitimate technical point, but the view from here argues that $16 is just pit-stop for AA, and the shares should trade near $25 by the end of 2011.

2011 Outlook: I view Alcoa as a long-term play, but if you're looking to sell AA within the year, it's probably best to take your profits after it rises to $18 or $19, if it fails to clear $20.

Stock Analysis: I consider Alcoa to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in AA now, then buy another 50% in one month if U.S. and global economic conditions don't worsen substantially. I'd put a sell/stop loss at $6.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.