Should you invest in Alcoa shares amid rising aluminium prices?

on Oct 4, 2021
  • Alcoa shares edged slightly lower on Monday despite Aluminium prices rising closer to 13-year highs.
  • The benchmark aluminium London Metal Exchange rallied to $2,917/mt just shy of its 13-year high of $3000.
  • The AA stock trades at an attractive forward P/E ratio of 8.46.

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On Monday, Alcoa Corp (NYSE:AA) shares edged slightly lower despite aluminium prices surging closer to the current 13-year highs. The Pittsburgh, PA-based company is the world’s eighth-largest producer of aluminium.

The benchmark aluminium index on the London Metals Exchange surged to $2,917 per ton, moving closer to last month’s 13-year high of $3,000. The demand for aluminium has surged recently despite the Chinese imposed production curbs. 

An industry expert told Reuters that China’s restrictive measures will not stop the rest of the world from buying aluminium, maintaining the current surge in demand against supply shortage could continue.

China has increased scrutiny and restrictions on high-polluting industries such as smelting to cut power use and emissions. 

Alcoa looks undervalued

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From a valuation perspective, Alcoa shares trade at an attractive forward P/E ratio of 8.46, making the stock attractive to value investors. Moreover, analysts expect the company’s bottom line to grow by 85% this year, before adding a further 2.21% next year.

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Therefore, Alcoa seems to have exciting short-term growth prospects, while the long-term outlook is less compelling. Therefore, growth investors may opt to monitor the performances for the next few quarters before buying.

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Source – TradingView

Can the bull run continue?

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Technically, Alcoa shares appear to be trading within an ascending channel formation in the intraday chart. As a result, the stock has rallied closer to the overbought conditions of the 14-day RSI.

Therefore, a pullback could be imminent, creating opportunities for investors looking to short the stock. Therefore, they could target pullback profits at around $45.51, or lower at $41.98. 

On the other hand, if the bull run continues, the stock could find resistance at $52.56, or higher at $56.23.

Alcoa could extend gains

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In summary, although Alcoa is up nearly 56% since 19th July, the stock could extend short-term gains amid its exciting valuation. However, with long-term growth prospects less exciting, a pullback could be on the horizon.

Therefore, investors could target short-term bullish profits ahead of the inevitable pullback.


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