Alcoa (NYSE: AA) could possibly be the worst non-financial stock in the Dow Jones Industrial Average’s 30 components. At $9.50, only Bank of America Corporation (NYSE: BAC) is down worse from a 52-week high (48% versus 62%). Things have been so bad that the consensus price target is only $12.42 from Thomson Reuters now and its 52-week trading range is $8.45 to $18.47 with a market cap of a mere $10.1 billion. This may seem unfairly punished, so we want to know what it will take to get Alcoa back above $10.00.
Alcoa trades at a discount to its stated book value with a 0.66-times book ratio. To imagine that Alcoa traded above $30 before the recession… and it had long ago been a rumored buyout target. The company was punished further after the October earnings report over what we thought should have already been known by Wall Street. As we have accused the market of now many times, the efficient market theory where the assumed and commonly known information manages to get priced in seems dead.
The trick is Asia and emerging markets rather than just an established Europe. Alcoa has maintained that the aluminum (or aluminium for Brits) sector can double over the next decade. Alcoa has been bolstering its balance sheet and we expect the company will keep doing that rather than going out and boosting its dividend. Things probably have to normalize again before the dividend gains.
Investors are snapping Alcoa shares up ahead of earnings season. It seems that the bottom fishers are betting that all the bad news (more bad news HAS to be expected for the quarter) is more or less priced into the stock. Is it true? We’ll find out in a couple of weeks when earnings season is led by Alcoa.
JON C. OGG
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