Shares of aluminum giant Alcoa (NYSE: AA) are on a tear today, up a healthy 9% as of 2:35 p.m. EST, and I think I know the reason why -- I'm just not sure it's a very good reason .
This morning, analysts at Vertical Research Partners initiated coverage on Alcoa stock with a "buy" rating and a $45 price target. On the one hand, that's a promising development. A share of Alcoa stock fetches less than $34 right now, so a move to $45 would equate to a 32% profit. On the other hand, though, about all we know about this recommendation from Vertical Research is that it happened.
StreetInsider.com reported the stock initiation at buy this morning, and confirmed Vertical Research's target price, but provided no actual details on the rating. TheFly.com , which often fills in additional details when they're lacking on the other site, had no information at all about today's rating.
Instead, what we know is this: The long slide in aluminum prices we've seen so far this year paused briefly this week, and aluminum's price per pound has risen about two-tenths of 1% since the week began. Viewed in isolation, this might be seen as good news for Alcoa stock; however, the price of aluminum metal is still down by about 15% over the past six months -- and that most definitely is not good news.
Despite the falling value of Alcoa's key product, analysts are hopeful that its profits will rise this year. But the company has been unprofitable over the past 12 months, and S&P Global Market Intelligence data show that Alcoa has lost money in four of the last five years as well. Honestly, given the longer-term trend we've seen in aluminum prices this year, I don't see much reason for the optimism -- or for today's "buy" rating, either.
My fear is that investors who rushed to buy Alcoa in response to Vertical's rating today will end up disappointed.
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