Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Allegheny Technologies Climbed in May

By Lou Whiteman – Jun 7, 2020 at 11:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The aerospace-focused business is holding up better than feared during the COVID-19 crisis.

What happened

Shares of Allegheny Technologies (ATI 7.03%) rose 15.6% in May, according to data provided by S&P Global Market Intelligence, on growing investor hope that both the company and the airline industry it serves will survive the COVID-19 pandemic. It's been a tough year for Allegheny investors: shares were down about 75% year to date as of late March. But in recent months, the stock has slowly been on the upswing.

So what

Allegheny Technologies is a specialty metals manufacturer focused on titanium and related alloys used in the aerospace, energy, chemicals, and medical markets. The company's primary focus is commercial jet engine parts, which comprise more than half of its sales.

That business has come under pressure due to the pandemic. Airlines that were looking to expand just months ago are now instead cutting flights and grounding planes. That means less demand for parts, and fewer new planes and engines expected to be sold in the years to come.

An airplane receiving maintenance in a hanger.

Image source: Getty Images.

The energy business has also been under pressure due to falling crude prices, limiting capital expenditure budgets in that industry.

Given the challenges its customers face, the best Allegheny can do for now is try to weather the storm. In May, the company provided a quarterly earnings update suggesting it is doing just that. Allegheny has nearly $900 million in liquidity plus access to another $600 million if necessary, which should be enough cash to survive even the worst of a downturn. It also said it was growing its business with Airbus, which seemingly means it is elbowing in on the turf of rivals including Howmet Aerospace.

Taken all together, investors in May were given the impression things were not as bad as they could be for Allegheny. That, plus a general improvement in overall market sentiment concerning the pandemic and its aftereffects, was enough to push the shares higher for the month.

Now what

A good May has turned into a terrific first week of June for Allegheny and other aerospace companies. The company's shares are up 39% for the month through June 6, thanks to a near-euphoric rise among the airlines on data suggesting travel is coming back.

Allegheny is a solid business and I have high hopes for its long-term success. But investors need to be reminded that even if traffic is beginning to return, we are still facing a long, uphill climb for the airlines. It could be 2023 before traffic returns to pre-pandemic levels, and that's assuming there is no second wave that sends us back to square one.

Even after the rally, shares of Allegheny remain off 40% year to date. That's understandable, given the challenges the industry faces. For patient long-term holders, buying in today will likely work out fine. Just be warned this upward momentum is not going to continue indefinitely.

Lou Whiteman owns shares of Allegheny Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Allegheny Technologies Incorporated Stock Quote
Allegheny Technologies Incorporated
ATI
$28.48 (7.03%) $1.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.