Alcoa May Be Bottoming Out, But Management Still Has A Lot To Do To Improve Costs

Despite liking management’s portfolio transformation plan, I wasn’t very bullish on Alcoa (AA) in late October, and my primary concerns – that the company is too high up on the cost curve and can do nothing about global overproduction – have come home to roost again, with management forecasting a “balanced” market for alumina in 2020, but an oversupplied aluminum market.

These shares still look undervalued relative to my expectations, but even after a 15% or so drop from that last article, I’m still not keen to own the shares. My basic approach on commodities is that you find the better opportunities in situations where there is a supply bottleneck that will take time to work out and/or where the supplier has a cost advantage. Neither really applies to Alcoa, and while I think further capacity curtailments, closures, and/or sales can improve the long-term viability of the business, I’m just not keen on trying to wring performance out of this name.

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Alcoa May Be Bottoming Out, But Management Still Has A Lot To Do To Improve Costs