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Why Arconic Stock Jumped 16.5% at the Open on May 20

By Reuben Gregg Brewer – May 20, 2020 at 12:35PM

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Specialty parts manufacturer Arconic saw a big gain at the open as at least one research shop thinks a business upturn is in the cards.

What happened

Shares of specialty parts maker Arconic (ARNC 9.15%) rose dramatically at the start of trading on Wall Street on May 20, gaining a heady 16.5% within 30 minutes of the open. Although it gave back some of that initial advance, by 11:30 a.m. the stock was still up by roughly 12%. The company itself didn't announce anything, but, according to The Fly, Credit Suisse had an opinion to offer about Arconic's future.

So what

Credit Suisse analyst Curt Woodworth initiated coverage of Arconic with an outperform rating. The logic behind that call is pretty simple. Arconic is one of the world's premier suppliers of aluminum products to the auto sector. Although car makers have been shut down, they are starting to reopen for business. That, in turn, should mean an uptick in orders for Arconic. The analyst thinks the third quarter will be a key inflection point.   

A person pouring molten aluminum

Image source: Getty Images

That view, however, is just the near-term picture. Woodworth also expects Arconic to benefit from a long-term recovery in the aerospace arena. That's another key end market for Arconic, and one in which its specialty parts business has notable scale and expertise. Ultimately, it looks like Arconic has both a near-term and longer-term catalyst. Investors clearly liked what the Credit Suisse analyst had to say and pushed the shares higher.

Now what

While the positive words out of Credit Suisse are encouraging, long-term investors shouldn't get too excited by the sharp price gain. Aluminum is a cyclical industry, and the global effort to slow the spread of COVID-19 is likely to force the world into a recession. That, in turn, could crimp demand in the end markets Arconic serves, the very ones that Woodworth highlighted in his research report. That's not to suggest that Arconic is a bad company, only that an investment here probably requires the consideration of broader economic issues before hitting the buy button based on an analyst report. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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