Alcoa Leads the Dow Lower

A fiscal-cliff-led rally can only last so long before the players involved have to deliver an actual resolution, and thus far, today's lack of news on the negotiation front has, at least for now, thwarted the market's upward charge. Despite a 3.6% climb in homebuilding permits in November, new-home construction dropped 3%. And even though premarket futures trading pointed to a higher open, the Dow Jones Industrials (DJINDICES: ^DJI  ) was down about 12 points by 10:45 a.m. EST. Broader market measures also fell modestly.

Among the 30 Dow stocks, Alcoa (NYSE: AA  ) traded sharply lower in early trade, falling nearly 3% following news yesterday that bond-rating agency Moody's might cut the aluminum giant's credit rating below its current level of "Baa3." Because Alcoa presently has the lowest possible investment-grade rating, any downgrade would push the company's credit into "junk bond" status, which could bring with it a substantial increase in borrowing costs when currently outstanding debt comes due. That's the last thing the profit-starved company needs, as aluminum prices have plunged and show few signs of a substantial recovery in the near future.

General Electric (NYSE: GE  ) also declined, dropping more than 2%. Speculation continues about GE's possible purchase of aerospace company Avio, which could help the company meet its goal of making itself an industrial-focused giant and increase the efficiency of its existing partnership to build engines for aircraft manufacturer Boeing (NYSE: BA  ) . Bears, however, seem more focused on concerns about weaker revenue growth in 2013, with uncertainties about macroeconomic conditions weighing on the stock.

Finally, Pfizer (NYSE: PFE  ) fell about half a percent on reports that it would cut 600 jobs, or about 20% of its primary-drug sales force, in response to falling sales of Lipitor. The blockbuster drug lost patent protection a year ago, and until new drugs work their way through the pipeline to make up for its lost revenue, the cost-cutting measure makes sense for Pfizer.

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Alcoa has struggled lately, but it's in a strong position to benefit from an expected long-term recovery in its market. Find out whether Alcoa is a buy by reading The Motley Fool's premium research report on the aluminum giant. For a Foolish investment perspective that comes with a year of free updates, simply click here to get started.


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  • Report this Comment On December 19, 2012, at 2:30 PM, TMFGalagan wrote:

    I just wanted to clarify: any potential downgrade of Alcoa wouldn't affect interest costs on existing already-issued bonds. Rather, it would only have an effect on interest rates if Alcoa decided to issue new bonds, whether to refinance existing maturing debt or to raise new capital.

    best,

    dan (TMF Galagan)

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