What happened
The stock of Alcoa (AA 2.62%) has become unstoppable. Shares of the aluminum giant surged this week and hit a 52-week high just this morning. As of 10:30 a.m. ET on Friday, the stock was already up 17.4% through the week, according to data provided by S&P Global Market Intelligence. With global events hugely favoring Alcoa right now, investors aren't shying from placing big bets on the aluminum stock.
So what
While the Russia-Ukraine conflict has affected nearly every sector, the commodity shock is unmissable. From oil and gas to metals, prices have shot through the roof on supply chain disruptions as sanctions hit Russia, and Ukraine was forced to shutter manufacturing activity.
On March 21, Australia announced a ban on all export of alumina and aluminum ores like bauxite to Russia in a bid to cripple the nation's aluminum production. Russia is the world's second-largest aluminum supplier, and Australia the world's largest exporter of alumina.
On the same day, the International Aluminium Institute reported a 2% year-over-year drop in global production of primary aluminum for the month of February.
Image source: Getty Images.
Aluminum stocks shot up right after these two news updates as investors bet on higher aluminum prices driven by a potential supply crunch even as demand continues to rise. Aluminum isn't just used in electricals and packaging anymore. The transportation sector is now one of the largest consumers of the metal thanks to aluminum's use in body panels, other parts, and batteries of lightweight hybrid and electric vehicles, the demand for which is growing exponentially.
Aluminum prices hit all-time highs earlier in March, and industry experts believe prices could hit those levels again after Australia's ban. It's a win-win for Alcoa, which doesn't just produce aluminum and finished products but is also one of the world's largest bauxite miners and operators of alumina refineries.
Now what
Alcoa could become a money machine as aluminum prices rise. The stock has already received several upgrades this week, including one this morning from Goldman Sachs analyst Emily Chieng, who raised Alcoa's price target to $115 a share from $88.
Earlier in the week, Morgan Stanley analyst Carlos De Alba raised Alcoa's price target from $78 a share to $100, while Argus gave the stock a price target of $95 a share.
If you think Alcoa stock is already pricey, consider this: The company ended 2021 with its highest-ever net income and earnings per share. With aluminum prices skyrocketing since, it's anyone's guess how much money Alcoa could make in 2022.
