What happened

Alcoa (NYSE:AA) stock underperformed a dreadful market in December, falling 16.4% compared to a 9% slump in the S&P 500, according to data provided by S&P Global Market Intelligence. It was a fitting end to a year in which the company's shares lost more than half their value.

Check out the latest Alcoa earnings call transcript.

So what

Alcoa's shares tend to be tied to the price of aluminum, so it's no surprise December was also a difficult month for the commodity. The spot price for aluminum fell by nearly 6% in December according to the London Metal Exchange, closing out 2018 down nearly 20% on the year.

There have been a lot of geopolitical issues weighing on Alcoa as well. The company was critical of a 10% tariff imposed on aluminum imports back in March, despite data that indicates it was a slight net beneficiary based on the amount it imports from its smelters in Canada and the movement of the U.S. domestic price. Alcoa's fears have been realized: The tariffs and trade wars have had the broader effect of delaying capital investment, which has at least temporarily frozen some capital expenditures and eaten into commodity demand. There are also growing worries that slowing Chinese consumption could depress prices in the quarters to come.

The inside of an Alcoa smelter.

An Alcoa smelter operation in Spain. Image source: Alcoa.

Alcoa also has a $2 billion deficit in its pension funding, so it can ill afford a recession or slowdown in demand. The December market swoon and growing talk of a slowdown likely hit Alcoa harder than most because of the company's balance sheet.

Now what

There is still a lot of risk to Alcoa, including factors that are outside of the company's control, like the health of the Chinese economy and the impact of trade wars. But Alcoa's shares at these lower levels are beginning to look attractive. The company trades at 8 times forward earnings estimates, a discount to metals giant Rio Tinto's 10.2 times forward earnings valuation. And investors have taken notice, sending shares of Alcoa up 6% in the early days of 2019.

I don't consider Alcoa a must-buy, but I do believe that a long-term investor with a healthy tolerance for risk is likely to do well getting in now. It's hard to time a recovery, but Alcoa shares likely have reached a level where they do not have much further to drop.