Is It Time to Buy Alcoa Stock?

AA Chart
AA Chart

AA data by YCharts .

Fundamentally, Alcoa's most recent recovery reflects the hope that the company's new strategy will continue to produce earnings growth. Specifically, in order to deal withraw aluminum prices that remain at fairly low levels, Alcoa has worked hard to build a portfolio of tailor-made products that it can sell to its better customers. These value-added products include key components for the aerospace and automotive industries, as technological advances and the ongoing need for greater fuel efficiency have given potential Alcoa customers the incentive and the means to capture cost-saving competitive advantages against their own rivals. For now, though, the full extent of the earnings growth that investors are hoping for hasn't yet materialized; from that perspective, even a successful performance could leave the stock playing catch up in the short run.

Aluminum wheel. Source: Alcoa.

Cleaning up against the competition

Part of Alcoa's success has come from maintaining a long-term view of the aluminum industry's potential. On one hand, Alcoa has made many corporate decisions to rein in production, closing smelter facilities and temporarily shuttering other operations to do its part toward shrinking overall industry supply and putting a floor under aluminum prices. On the other hand, even as major competitors Rio Tinto and BHP Billiton have sought to sell off some aluminum assets -- largely unsuccessfully -- Alcoa has kept its eyes open for good long-term deals. Alcoa's willingness to make strategic acquisitions will serve it well when aluminum prices finally recover.

Alcoa has done well to make moves in line with its overall corporate strategy. The company's purchase of aerospace component producer Firth Rixson for $2.85 billion further accentuates Alcoa's commitment to the aircraft industry. With trillions of dollars' worth of potential new airplanes due to be built in the next 20 years, Alcoa's efforts to be the go-to provider of customized aluminum materials for aerospace have a huge potential to pay off. In addition, Alcoa has taken steps to ensure that other materials don't supplant aluminum, with a partnership with a Russian producer of titanium helping to diversify Alcoa's product base and helping give aerospace customers a single platform for all their needs.

Source: Alcoa.

Domestically, Alcoa towers above its peers in the industry. But nimble players such as Noranda Aluminum and Century Aluminum still pose a threat, as their smaller size could make them better able to adapt to changing circumstances more quickly.

Is Alcoa a good buy right now?

With the share price more than doubling in less than a year, it's hard to see today as a perfect time to buy Alcoa stock. Geopolitical and economic risks have grown more numerous in 2014, yet that hasn't stopped share prices from continuing to climb. Yet if Alcoa's plans come to fruition, then investors might well never get a better chance to buy the aluminum giant's stock. From that perspective, even a small pullback like the one we've seen over the past month is a potential buying opportunity for long-term investors.

You can't afford to miss this

"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here !

The article Is It Time to Buy Alcoa Stock? originally appeared on

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More