Wednesday, July 14, 2010

Take Alcoa's (NYSE:AA) Performance with a Grain of Salt

It seems everyone is touting the performance of Alcoa (NYSE:AA) as a sign the economic recovery is in full swing, a very dubious assertion and conclusion by those who'll end up eating those words in the future.

This isn't to say Alcoa hasn't done some good things to generate a decent quarter, just that with aluminum prices still down, it was cost-cutting measures which helped them with earnings, not margins.

While that's good for management, it doesn't take care of the demand factor, which is what will drive the prices of aluminum. Until aluminum prices start to rise again, there's not a lot more Alcoa can do but wait things out.

To say the earnings of Alcoa in the latest quarter point toward a recovery can't even been taken seriously in light of aluminum prices. Cutting costs doesn't point to increased demand, no matter what the company and analysts' assert.

Until you see aluminum prices going up, the so-called economic indicator of Alcoa is largely irrelevant.

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