Is Alcoa (AA) Setting Up for a Breakdown?

Alcoa Corp (AA) is a vertically integrated aluminum company whose operations include bauxite mining, alumina refining, and the manufacture of primary aluminum. It is the world’s largest bauxite miner and alumina refinery by production volume, and its profits are closely tied to prevailing commodity prices along the aluminum supply chain…

Alcoa Corp (AA) recently reported a very strong third quarter. In fact, AA reported its highest-ever quarterly net income of $337 million. It also generated $3.1 billion in sales due to higher alumina and aluminum prices. AA is the world’s largest producer of alumina, which is used to produce aluminum.

AA had $1.4 billion in cash as of the end of the third-quarter, compared to short term debt of only $1 million. In the third quarter, earnings rose from -$1.17 to $2.05 and sales jumped 31% year over year. Analysts expect sales to jump another 43.4% year over year in the current quarter, while earnings are expected to surge 765.4% year over year in the same period.

This has led to a Growth Grade of B in our POWR Ratings system. The stock looks extremely undervalued with a forward P/E of only 6.97. AA was showing bullish momentum at the beginning of the month, but has since reversed course and is now trending down as shown in the chart below.

Take a look at the 1-year chart of AA below with the added notations…

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