Alcoa's Stock Has Surged 30% in a Month and It Shows No Sign of Slowing Down
Alcoa's stock is on fire.

Question? What stock closed at 57.08 last night, up nearly 30% month to date? Must be a chip stock, or a cloud type, right? Hint: The firm reports their Q1 numbers tonight. Hmm... how about Alcoa (AA) ?

The former Dow Jones Industrial Average component is expected by the industry to report earnings of $0.60, but whispers around town are for several pennies more than that. Revenue? Wall Street is looking for a rough $3.11 billion. That would amount to mere year over year growth of 17%, and be the sixth consecutive quarter sequentially that the firm reported positive revenue growth.

There's a lot to like about the modern iteration of Alcoa. From Q4 2016 to Q4 2017, net sales popped from 2.537 billion to 3.174 billion. Profits more than doubled. Cash and equivalents on hand grew to 1.358 billion from $853 million while total debt actually declined small to $1.404 billion. Gross profit margins improved, while operating margin nearly tripled from 6.3% to 18.2%. The current ratio appears quite healthy, while the quick ratio resides in a much less desirable neighborhood. Perhaps that might be less avoidable in an inventory heavy industry such as this.

There are three items for the retail investor to keep in mind here.

One.

Markets are obviously pricing in President Trump's 10% tariff on aluminum in general (despite the many exemptions), and more specifically on Rusal (Russia's top aluminum producer).

Two.

The stock has run wild. I like the name, but I am flat the name, and I do not chase stocks that behave like this going into their quarterly numbers. The stock is also testing it's all-time high (or at least it's high, since the split with what is now known as Arconic (ARNC) ).

Three.

I have been watching AA related options, and they are expensive, indicating at least a two dollar move on the news.

I will wait on this one to see how the market digests the news. If one is compelled to get involved, I would be far more comfortable writing a 54.50 April 20 put at the last sale of $0.68 than I would straight buying the equity. Raises some revenue, and if one is forced to eat the shares, at least the net basis drops to 53.82.

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