I own Alcoa (AA) going into Monday’s earnings report. And frankly, you should, too.
Because the numbers don’t lie on Alcoa stock.
Sure, there are troubles — and frankly, earnings may be one of them. JP Morgan (JPM) just downgraded Alcoa stock to “neutral” in advance of earnings, and its debt was just pushed down to junk status at Moody’s (MCO). Throw in the fact that downward EPS revisions have been coming hot and heavy and it doesn’t look good for Monday’s Alcoa earnings report.
But like many things on Wall Street, Alcoa stock may be beholden to different numbers than what investors think.
Consider that on July 24, 2012, Alcoa briefly traded below $8 intraday to touch $7.97. It quickly rose to break $9 on Sept. 7.
By Nov. 16, 2012, however, it was back down to hit $7.98 intraday. It hit $9.15 intraday on Jan. 3, 2013.
Now we’re back under $8 a share. And given the history, it seems a safe bet we’ll get back to $9 in short order.
That’s why I had a standing limit order to buy Alcoa stock under $8 based on recent history. In April, when Alcoa started trading briefly for under $8 again, I staked out this trade with a standing order to buy under $8 a share; I was filled in June.
I’m not under the illusion this will be some kind of long-term bet that pays off in spades as the materials market recovers and starts going like gangbusters in 2014. A strong dollar and a weak China pretty much make that impossible.
But don’t be fooled into thinking that Alcoa is like some of the other gutted commodity stocks out there like coal king Peabody Energy (BTU), which is down 44% year-to-date in 2013, or gold miner Barrick Gold (ABX). Coal is a dirty and anachronistic energy source, and gold is the playground of speculators. Meanwhile aluminum is still a staple material for appliances, autos and airplanes — not to mention beer cans and foil for baking.
And given the market’s big run in the last 12 months or so for homebuilders like PulteGroup (PHM) or longsuffering tech giants like Hewlett-Packard (HPQ) more recently, it’s not impossible to think AA could gain a tailwind thanks to “risk-on” investors looking for the next sector rotation in this rally.
Technically I’m sitting on a loss right now, but I’m not worried. Because history is in my favor that Alcoa stock is trading at a floor and will quickly bounce back to deliver me my double-digit gain.
Heck, if Alcoa is brutalized on an earnings miss, I may double down on my position.
- But what do I know? I thought Alcoa had long-term upside in 2012 … oops. (InvestorPlace.com)
- Junk in the Dow Jones? Say it ain’t so! (Bloomberg)
- Speaking of beer cans, a move toward cans for craft brews means upside for Alcoa. (Knoxville Biz)
- Expect flat EPS, lower revenue from Alcoa. (Benzinga)
- And expect earnings to be ugly all around. (The Slant)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a long position in AA.