Should You Hold On To Alcoa Stock After 9% Rally Last Week?

March 16th, 2021 by Trefis Team
-4.17%
Downside
36.08
Market
34.57
Trefis
AA: Alcoa logo
AA
Alcoa

Alcoa stock (NYSE: AA) shot up 9% in the last five trading days (one week) and currently trades at $31 per share. This reflects more than a 2x rise compared to the S&P 500 which saw a 4% increase during this period. After the company beat analysts’ expectations in its 2020 report, the company recently received a thumbs up from Goldman Sachs, which upgraded its call on Alcoa’s stock from sell to buy – a two-notch upgrade. Despite having a positive free cash flow (FCF) generation over recent years, Alcoa’s FCF has been lower than its peers. Also, its margins have been affected due to high cost aluminum operations. However, aluminum prices have remained strong over recent months and have, in fact, risen from less than $2,175/ton a week back to $2,218/ton on 15th March 2021. Prices are likely to remain elevated over the next two years driven by higher demand. Higher aluminum price realization has led to expectations of improvement in Alcoa’s FCF, which the company is likely to use for deleveraging. Thus, expectations of improvement in fundamentals, stronger balance sheet and overall positive sentiment with respect to global aluminum prices, have led to a surge in Alcoa’s stock price over the last week.

However, is Alcoa stock set to continue its upward trajectory or could we expect some correction? We believe that there is a strong chance of further rise in Alcoa stock over the next month (twenty-one trading days) based on our machine learning analysis of trends in the stock price over the last ten years. See our analysis on Alcoa Stock Chances Of Rise for more details.

Five Days: AA 9%, vs. S&P500 4.2%; Outperformed market

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  5. Buy, Sell, or Hold Alcoa Stock As Aluminum Prices Remain Soft?
  6. Falling Aluminum Prices Will Weigh On Alcoa’s Q3 Results

(7% likelihood event)

  • Alcoa stock rose 9.0% over a five-day trading period ending 3/15/2021, compared to broader market (S&P500) rise of 4.2%
  • A change of 9% or more over five trading days is a 7% likelihood event, which has occurred 183 times out of 2516 in the last ten years

Ten Days: AA 19%, vs. S&P500 2.1%; Outperformed market

(2% likelihood event)

  • Alcoa stock rose 19% over the last ten trading days (two weeks), compared to broader market (S&P500) rise of 2.1%
  • A change of 19% or more over ten trading days is a 2% likelihood event, which has occurred 42 times out of 2500 in the last ten years

Twenty-One Days: AA 45%, vs. S&P500 1.7%; Outperformed market

(11% likelihood event)

  • Alcoa stock rose 45% the last 21 trading days (one month), compared to broader market (S&P500) rise of 1.7%
  • A change of 45% or more over 21 trading days is a 11% likelihood event, which has occurred 262 times out of 2458 in the last ten years

Out of 183 instances in the last ten years that Alcoa (AA) stock saw a five-day rise of 9.0% or more, 101 of them resulted in AA stock rising over the subsequent one-month period (21 trading days). This historical pattern reflects 101 out of 183, or about 58% chance of gain in AA stock over the coming month

While Alcoa stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

 

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