Global aluminum and materials products producer Alcoa (NYSE: AA) has plunged its inventory (-19%) for 2022. Inflationary pressures leading to rising interest rates have led to a decline in the margins of the country’s largest aluminum producer. While most people are aware of common uses of aluminum, ranging from soda cans and kitchenware to foil, windows, energy and housing and construction, there is a growing use for electric vehicles (EV). Aluminum is a lightweight, non-toxic, strong, and low-density rust-resistant metal that helps make lighter cars. Shares are down more than 40% since hitting a high of $98.09 in March this year. The company continues to beat analysts’ estimates even as they are lowered. Raw material prices continue to rise, cutting Alcoa’s margins.
Alcoa looks cheap
Stocks spiked last year on optimism about the infrastructure bill, which turned out to be a sell-the-news event. However, the EV market can drive growth as the segment continues to grow. EVs need more aluminum than regular cars. The EV market is expected to grow at a compound annual growth rate of 23.5% (CAGR) through 2028. Stocks trade at just 6x future earnings, making this an almost certain value game. Alcoa also announced a $500 million share repurchase program after it surpassed its second quarter 2022 earnings guidance by $0.18 per share. Cautious investors seeking exposure in both the aluminum and EV segments may look for opportunistic pullbacks in Alcoa stocks.
Electric vehicles need more aluminum
The average internal combustion engine (ICE) vehicle had about 459 pounds of aluminum in 2020. Light trucks like the Ford F-150 have nearly 550 pounds of aluminum. Higher-end sports cars like the Tesla Model S have over 800 pounds of aluminum. Aluminum is ideal for EVs with its light, non-corrosive and durable properties. While EV maker Tesla (NASDAQ:TSLA) leads production, major US automakers such as General Motors (NYSE:GM) and Ford (NYSE:F) are going all-in for the future of all-electric vehicles. General Motors has pledged to spend $35 billion on EV development to introduce 30 models between 2020 and 2025. They expect to build more than 1 million EVs a year in North America and expect to have a fully electric car by 2035. The Biden administration has set a target that 50% of all new cars should be electric by 2030. The world’s second largest automaker, Volkswagen (OTCMKTS: VWAGY) expects at least half of its car sales to be electric by 2030.
China is the largest aluminum producer
Alcoa is the largest public producer of aluminum in the US, but China is by far the largest producer and consumer of aluminum in the world. The government also subsidizes many of the production elements. The country of 1.3 billion people has the world’s largest auto sector producing nearly 30% of global production. China has the largest network of EV Superchargers and EVs have an even shorter waiting time than traditional combustion engine vehicles. Leading EV makers like Xpeng (NYSE:XPEV) and NIO (NYSE:NIO) are still growing with a double-digit clip with a very long runway. Europe follows as the second largest consumer of aluminum in the world.
AA Opportunistic Entry Levels to Consider
Using the gun charts on the weekly and daily time frames provides an accurate picture of the price action playing field for AA stocks. The weekly inverse pup breakdown of the gun chart was caused by the rejection of the $66.92 Fibonacci (fib) level. The weekly downtrend is stagnating as the 5-period moving average (MA) rises to $46.58 and the 15-period MA stops at $53.56. The weekly stochastics crossed back with a mini pup to the 20 band putting on a make or break. The weekly market structure low (MSL) buys triggers on the breakout to $48.34. The daily stochastic made a full oscillation up to the 90 band to peak and slip. The daily uptrend is slowing down as the 5-period MA stalls at $49.02 and the 15-period MA rises at $46.32. The 50-period daily MA is down at $50.83 and the 200-period daily MA at $63.19. The daily upper Bollinger Bands (BBs) are near the $52.21 fib level. The daily lower BBs are near $38.95. The daily is very overbought, so it’s important not to chase it as the wait for the daily stochastic oscillates downward. Cautious investors can check for opportunistic pullback levels on the $44.42 fib, $42.45, $40.71 fib, $39.47, $36.66 fib, $34.59 fib and the $33.10 fib level. Upward trajectories range from the $66.92 fib to the $90.66 fib level.
This post Electric Vehicles Could Drive Alcoa Inventory Higher was original published at “https://www.entrepreneur.com/article/432922”