With shares of Alcoa (NYSE:AA) trading around $8, is AA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for a Stock’s Movement

Alcoa is involved in the production and management of aluminum. As the world continues to develop, products such as aluminum are essential. The company is a giant and has the resources to deliver products wherever needed, but can it do it at the right price? Look for Alcoa to benefit from the developing world as it expands and the developed world as it invests to rebuild.

T = Technicals on the Stock Chart are Weak

Alcoa’s long term price chart is telling one thing, the stock has been hurting in recent years. Why has it been hurting? That can only be determined with fundamental analysis. The stock is currently trading at price levels not seen since 2008. Its holding support but who knows how much longer and is also in a range extending to last year. The trend has been that of lower highs and lower lows, a downtrend, and it is in tact until proven guilty.

Let’s take a look at the key moving averages in order to evaluate the trend. What are the key moving averages? The 50-day, 100-day, and 200-day simple moving averages. Currently, Alcoa stock is trading below all of the key moving averages. This is signaling further range bound trading or lower prices. In any case, the trend is not a positive one for Alcoa.

An easy way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Alcoa options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Alcoa options is at 34.26 percent today which coincides with a 90th percentile over the last 30 trading days and 52nd percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30, and a good amount, as compared to the last 90 trading days.

The implied volatility skew of March and April put options is steep while call option skew is at about average. Now, what does this mean? As of today, there is an average demand from call buyers or average supply of call sellers while there is high demand by put buyers or low demand by put sellers, all neutral to bearish over the next 2 months. So, investors are buying a good amount of call and put option contracts and are leaning neutral to bearish over the next 2 months, normal situations during constructive times.

E = Earnings Are Decreasing Quarter-Over-Quarter

Stocks have earnings and revenue growth expectations that are built into the stock price. Investors would like to see earnings and revenue growth increasing so that the stock price can also increase. What do the last 4 quarterly earnings and revenue growth figures look like? The last 4 quarterly earnings growth (Y-O-Y) rates have been: 300, -80, -81.25, and -62.96 percent while the last 4 revenue growth (Y-O-Y) rates have all been negative.. Alcoa has had low earnings and revenue growth rates over the last 4 quarters.

More importantly, how did the markets receive these numbers? Let’s take a look at the last 4 quarterly earnings announcement reactions in order to gauge investor sentiment on Alcoa’s stock. The last 4 quarters have seen next trading session returns of -0.21, -4.61, -4.13, and 6.29 percent. The markets have not enjoyed the earnings reports that Alcoa has provided over the last 4 quarters.

E = Poor Relative Performance Versus Peers and Sector

How has Alcoa stock done year-to-date relative to its peers and sector? Year-to-date, the stock is returning -7.17 percent while its competitors, Aluminum Corporation of China (NYSE:ACH), Kaiser Aluminum (NYSE:KALU), Alumina (NYSE:AWC), and sector are returning -16.41, -3.26, 15.99, and -15.42 percent respectively. Alcoa is trailing its peers and industry by a wide spread.


Alcoa is in an industry that is seeing significant demand due to developing and developed world infrastructure enhancements. On the price chart, the stocks seems to be hanging on by a thread. The decline in the stock price has come partly on poor earnings and revenue figures. This can be further seen in Alcoa’s performance relative to its peers and sector, it’s leading the group to the downside. STAY AWAY from Alcoa stock for now.

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