All eyes were on Alcoa Tuesday as the largest American aluminum producer kicked off earnings season.
And the former Dow component didn’t disappoint. The company reported better-than-expected earnings on both the top and bottom line, $0.18 per share versus an estimate of $0.12 per share and revenue at $5.84 billion versus $5.66 billion, sending shares soaring after hours Tuesday.
Alcoa was dumped from the Dow Jones Industrial Average last September, but that hasn’t stopped investors from flocking to the once left for dead stock. Shares of the company are up more than 75 percent since getting the boot, and has outperformed every Dow component on a year-to-date basis, Alcoa is up 40 percent while the top Dow performer Caterpillar is up 20 percent.
So, will Alcoa’s amazing run continue? Or should investors steer clear of AA?
“It’s the ultimate of the ‘Dogs of the Dow’,” said Oppenheimer’s Andrew Burkly, who noted that higher aluminum prices will help current earnings, but the real story is how the company is reinventing itself.
“The company has really reinvented themselves fundamentally. They call themselves a global leader in lightweight engineering now. So, the whole idea of just relying on the smelters is kind of moving in secondary place for Alcoa, and I think their doing things right. They’re moving in the right direction.”
Auerbach Grayson’s Richard Ross couldn’t agree more, “There’s really reason to like Alcoa for the first time in a number of years,” he said. “The reason is that break back above the 200-week moving average for the first time in almost six years. That tells me that the longer-term trend might be up for this stock after many years of a pervasive downtrend.”
On a chart dating back to October 2013, Ross pointed out that Alcoa has stayed above its 50-day moving average, an extremely strong trend in his opinion. But perhaps even stronger is a bullish ascending triangle, which he used to give him a measured upside target of about $14.80 per share, right in line with current levels.
But Ross warned not to go full throttle on Alcoa just yet. His suggestion, take profits and sell into strength or buy on a pullback.