Alcoa (AA) was unceremoniously booted from the Dow Jones Industrial Average last week, with AA stock finishing up a 54-year run on the index with yet another daily decline.
AA hasn’t really budged this week, either, sticking around $8.30 a share; Alcoa stock is sitting on a roughly 4% loss year-to-date vs. a 17% gain for the Dow Jones index it just left.
Of course, Alcoa isn’t going anywhere as a company. The Dow is hardly the end-all of stock market indices, and AA stock will remain part of the much larger S&P 500 even if Alcoa isn’t among the 30 Dow components anymore.
And bigger-picture, AA stock isn’t at risk of delisting or bankruptcy — quite the opposite, with a right-sized but profitable Alcoa trudging forward in the face of incredible headwinds.
In fact, AA stock might be considered a crash-proof bargain buy simply because of what it has gone through and the fact that the worst it has suffered is a removal from the Dow Jones.
Consider that 2009 was characterized by continued quarterly losses for Alcoa, and the stock crashed about 70% thanks to a global manufacturing slowdown. AA stock was crunched by lower sales, a glut of supply that pushed down overall aluminum prices and the very painful nature of a capital-intensive commodities business that had laden Alcoa with serious debts.
Now, five years removed from the financial crisis, Alcoa has $1 billion less in long-term debt and is profitable again after closing plants and laying off a host of employees.
Alcoa Stock Not Out of the Woods, Though
Alcoa clearly still has its issues. Moody’s downgraded Alcoa debt to junk status in May, and restructurings continue at the aluminum giant as part of a way to prop up profits in the face of a top line that is flat at best.
And without a recovery in commodity stocks, led by global manufacturing and strength particularly in China, Alcoa will continue to face the same headwinds.
However, we are seeing signs of hope in European manufacturing and the American housing sector, which might bode well for aluminum demand. And hey, even if things don’t improve for a while, it’s not the end for AA stock.
If Alcoa has struggled through thus far, it surely isn’t going to disappear now that it has less debt and lower costs.
If you’re a long-term investor banking on a cyclical recovery in 2014 or 2015, AA stock might be a wise bargain buy. Considering the froth in the rest of U.S. equities after a big run in 2013, it might be a good idea to consider bargain hunting in out-of-favor players like Alcoa … at least on a small scale.
Related Reading on AA Stock
- In July, restructuring costs pushed AA to a bigger quarterly loss. (WSJ)
- Aaron Levitt wonders if Alcoa is really “junk” after the debt downgrade. (InvestorPlace.com)
- Without Alcoa as the bellwether opening earnings season … the burden falls to new Dow component Nike (NKE). (Business Insider via Yahoo Finance)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.