Alcoa Shares on the Comeback Trail

Alcoa Inc. (NYSE:AA) is one of the 30 coveted stocks of the Dow Jones and since July 7th its shares have bounced back by 51%, but can that trend continue?

Just about every stock in the Dow has gained back some of its market share since March 2009, Alcoa shares got down to $4.97 and today they trade in the $14 range.  Alcoa holds the title of the largest U.S. aluminum producer, aluminium prices have also staged a comeback, its now at $1,900 per tonne after having fallen as low as $1,100 per tonne.  That's good news for Alcoa and their CEO Klaus Kleinfeld said this past week that 'this increase is a completely important indicator."

SLOW POSITIVE GROWTH
That's the message Kleinfeld is preaching, he told a German magazine (Capital) on Thursday that the world economy is now on its way to sustainable recovery but the way up will be a slow one.

"The freefall has ended... I now see again a series of positive signs," Klaus Kleinfeld said.  "I believe the uptrend is sustainable but I do not expect that we will have a quick, jerky upward movement. I believe the level will stabilise and then gradually proceed further up."

A second indicator is that distributors' inventories are empty, with inventory depletion reaching levels "never seen since Alcoa was founded".

"More and more traders are asking for our delivery conditions. They recognise that they are unable to deliver as soon as the demand starts. They are afraid now that they will miss the first surge of demand," Kleinfeld said.

He said the usual dent seen during the summer break has not materialised to a large extent. "There is not a region in the world, not even in Europe, where the holiday effects have always been the strongest, where we see a slackening in demand," he said.

Kleinfeld said the recovery has already started in Brazil, and he expects India will post growth again this year.

China is for him a "phenomenon", having put out the most intelligent economic stimulus programme, and will achieve its 8 percent growth target for this year.

He said there are also positive signs emerging in the United States, citing an increase in housing sales, orders for manufactured goods and car production. 

Alcoa (AA) 101
Alcoa shares have shown impressive gains in the past few months but so much of its share price is based on aluminium prices and the world economy.  This stocks is worth adding to your watch list but after the recent run-up its best to let the factors that drive Alcoa's share price show investors the way.  Patience is key, there's nothing wrong with waiting on the sidelines to see if Klaus Kleinfeld is right about a slow recovery.

Disclaimer: No positions in AA.