Trade-Ideas LLC identified

Alcoa

(

AA

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Alcoa as such a stock due to the following factors:

  • AA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $188.1 million.
  • AA has traded 4.9 million shares today.
  • AA is trading at 2.74 times the normal volume for the stock at this time of day.
  • AA crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on AA:

Alcoa Inc. engages in engineering and manufacturing lightweight metals worldwide. The company operates through five segments: Alumina, Primary Metals, Global Rolled Products, Engineered Products and Solutions, and Transport and Construction Solutions. The stock currently has a dividend yield of 1.3%. Currently there are 7 analysts that rate Alcoa a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for Alcoa has been 23.8 million shares per day over the past 30 days. Alcoa has a market cap of $12.0 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 0.64 and a short float of 9.6% with 6.07 days to cover. Shares are down 5.5% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Alcoa as a

hold

. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • The debt-to-equity ratio is somewhat low, currently at 0.74, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that AA's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
  • Despite the weak revenue results, AA has significantly outperformed against the industry average of 45.0%. Since the same quarter one year prior, revenues fell by 15.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 91.8% when compared to the same quarter one year ago, falling from $195.00 million to $16.00 million.
  • The gross profit margin for ALCOA INC is rather low; currently it is at 18.37%. It has decreased from the same quarter the previous year.
  • Net operating cash flow has significantly decreased to -$430.00 million or 145.71% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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