Alcoa Stock Is Beating the Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is basically unchanged after China reported a trade surplus in April. Alcoa (NYSE: AA  ) stock is up on the news, as a stronger Chinese economy means more demand and higher prices for aluminum. As of 1:15 p.m. EDT, the Dow was up 11 points to 15,067. The S&P 500 (SNPINDEX: ^GSPC  ) was up four points to 1,630.

There were no U.S. economic releases today. China reported that its exports grew 14.7% in April, above March's 10% rise, which was enough to swing China back to having a trade surplus. In March, China surprised investors after it reported an $884 million trade deficit, increasing investors' fears of a slowdown in China. April's growth in exports led China to report a trade surplus of $18.16 billion. If the numbers are accurate, this is a good sign for China's economy; however, some analysts are questioning whether the numbers are too good to be true. The growth in exports is in contrast to the HSBC purchasing managers index, which showed that new export orders dropped during the month. That said, Asian markets are up nearly 1% on the news.

Today's Dow leader
Leading the Dow today is Alcoa, which is up 2.55% to $8.86. Alcoa is a cyclical stock whose results depend largely on the health of the economy. Alcoa has been hit hard the past few years as an oversupply in the aluminum market combined with a drop in demand to crush aluminum prices.

Source: World Bank Pink Sheet.

To fight against the drop in prices, Alcoa idled 13% of capacity last year and has considered cutting more production at high-cost plants and in countries with high-cost energy. This helped Alcoa beat earnings expectations in the first quarter. Alcoa believes that the worldwide aluminum market will grow 7% this year. Other investors are not so optimistic. With continued low prices, Europe in recession, and recent economic data suggesting a slowdown in Asia and the U.S., Alcoa has become the most shorted stock on the Dow.

Today, Alcoa stock is up as the Chinese export report suggests a stronger Chinese economy, meaning more demand for aluminum. If the Chinese economy does pick up and aluminum demand rebounds, Alcoa could be a great buy at current prices. That said, if the worldwide economy slows down further, Alcoa and other commodity producers will be hit hard and some will not survive.

Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about 15% of global production in this highly consolidated industry, Alcoa is in prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this prospect and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant, simply click here now to get started.


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