Will Alcoa Corp (NYSE: AA) Rally Higher after Last Year’s Impressive Run?

January 15, 2018, 09:46 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Alcoa Corp (NYSE: AA) performed extremely well in 2017 given that its stock price rose by about 91%, which was almost double its initial stock price, by the end of the year. This was an impressive performance given that 2017 was the first full year that Alcoa operated independently after its split from Arconic Inc (NYSE: ARNC) in 2016.

Article Summary

Alcoa Corp had a stellar 2017 where its stock price almost doubled.

The company benefitted from rising Aluminum prices and streamlined operations.

The company has a stable outlook for 2018.

Here’s the trading report on AA.

Most investors and analysts believed that Arconic was the better investment given that its main operations were centered on making specialty engineering parts, while Alcoa was serving the aluminum value chain. Alcoa was viewed as a risky bet given the volatility associated with commodities, which is a risk that all commodity investors must accept.

The main drivers behind Alcoa’s rally was the steady rise in aluminum prices witnessed last year, as compared to the weak prices of 2016 when there was an oversupply of aluminum in key markets. The company capitalized on the strong aluminum market, while at the same time streamlining its business operations in order to minimize operating costs, which had a major positive impact on the company’s bottom line.

The run up in aluminum prices also affected investor sentiment towards the company as commodity investors bought Alcoa stock in order to benefit from the rising aluminum prices. The 2018 outlook for the aluminum industry is quite stable given that Chinese companies servicing the aluminum value chain face significant roadblocks in the form of tougher regulations and inspections to ensure their operations are environment friendly.

Alcoa has strived to improve its business fundamentals in the past year given that it started the year with $3 million in free cash flow at the end of Q1 2017, which grew to $288 million in Q3 2017. The company also strengthened its business operations by cutting unnecessary costs and growing its revenues, which will benefit the company going into 2018.

Finally, it is evident that Alcoa is likely to have a good run in 2018. However, it is not enough to know that a stock is likely to head higher this year; as an investor or trader, it is important to time your entry and exit points accurately in order to minimize risk and maximize your profit potential.

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