In this segment from MarketFoolery, host Mac Greer is joined by Motley Fool analysts Jason Moser and Taylor Muckerman to dig into the current situation at Arconic (NYSE:ARNC), which until late 2016 was the parts manufacturing division of aluminum giant Alcoa.
In the year and a half since it was spun off, the company has been underperforming expectations somewhat, but its real problems began when President Trump started heating up his trade wars. And those troubles make Arconic a tempting target.
A full transcript follows the video.
This video was recorded on July 16, 2018.
Mac Greer: Shares of Arconic surging on buyout rumors. Taylor, when I heard this story, my first big question was, what is Arconic? Then I did some crackerjack research. They make aeronautical parts out of aluminum. This is never a phrase you want to see -- a Bloomberg characterized Arconic as a "beleaguered manufacturer."
Taylor Muckerman: This company was born out of Alcoa, which is traditionally the company that kicks off earnings season every quarter. They split this company in half not too long ago. Alcoa kept the aluminum-producing side, Arconic got the aluminum parts manufacturing side.
As you mentioned, aerospace is big, automotive is very big for this company. Haven't been performing as well as one would expect, given the growth in aeronautical spending and the continued surge in the automotive sector. This all started in January, when the trade talk started emerging, and aluminum and steel prices plummeted.
This company, until this morning, was down about 50% from its 52-week high back in January. Tough time for shareholders, and likely why the private equity groups that have been mentioned, one being Apollo, are rumored to be interested in buying this company out, as the share price has taken such a dive.
Greer: If you're a shareholder right now, what do you do? Do you get out?
Muckerman: It's tough to say. I don't know if you're going to see much more price appreciation in the near-term if these trade talks continue this way. I'd say, keep holding and wait to see if there's a competitive bid. They mentioned multiple companies out there are rumored to be interested. Maybe you get a private equity bidding war, drive the share price up a little bit more. But in terms of the global markets and the stock price, I don't see too much more appreciation until the trade talks are tempered.
They did just sign an extended big contract with Boeing this morning. That could also have an impact on the stock price today. But that's not necessarily enough to get me over the weight that's being held down on aluminum prices right now.