Please ensure Javascript is enabled for purposes of website accessibility

Why Alcoa Stock Jumped as Much as 10% Today

By Reuben Gregg Brewer – Updated Jul 14, 2020 at 1:42PM

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 aluminum company, set to report earnings on Wednesday, saw a gain after announcing that it had basically achieved one of its previously stated goals.

What happened

Shares of aluminum giant Alcoa (AA) were higher by 10% around noon EDT on Tuesday. Although the company is set to report earnings on Wednesday, it has already announced results, so its report isn't likely to be much of a surprise. But before the market opened, the company released some interesting news that's likely to come up during the earnings call.  

So what

When Alcoa announced its results on July 8, CEO Roy Harvey said: "In the second quarter, we realized gains in productivity, cost savings and also increased our cash balance. Now, we're working to increase overall liquidity and gain even greater flexibility as we execute on our strategy, including the ongoing portfolio review and the sale of non-core assets." In other words, Alcoa is working to shore up its balance sheet as it continues to overhaul its business, not a bad call given the global impact of COVID-19.   

A person holding a raw aluminum ingot

Image source: Getty Images

With that goal in mind, Alcoa announced after the close on Monday, July 13, that it had completed the sale of $750 million of bonds. The notes, with a 5.5% interest rate, will come due in 2027. In that release, the aluminum maker noted that a key point of the sale was to increase the company's cash balance. Basically, a day before it released earnings, it announced that it had lived up to one of the goals it outlined on July 8. That put investors in a good mood.   

Now what

Aluminum has recovered from a swoon in the first few months of the year, which is good news for Alcoa. But base aluminum is a commodity business, and Alcoa largely sells undifferentiated products. The company's top and bottom lines are basically subject to the whims of the market. And since aluminum is a cyclical business, long-term investors shouldn't let near-term price swings (in aluminum or the company's stock price) bias their view of the underlying factors driving results.

For example, the U.S. entered a recession in February largely because of COVID-19, which is again seeing a rise. And the rest of the world is also facing ongoing coronavirus issues. All in, there are still a great many uncertainties here, and volatility is likely to remain elevated.  

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.

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

Alcoa Stock Quote
Alcoa
AA

*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
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

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.