Alcoa Is Your Best Buy For 2012 After Earnings

| About: Alcoa, Inc. (AA)

By Jeff Reeves

Alcoa (NYSE:AA) reported a quarterly loss in its fourth-quarter earnings on Monday afternoon. However, the loss was expected after last week's headlines about one-time restructuring charges at Alcoa, and AA stock rallied across Monday in anticipation of the report and is headed for more gains Tuesday.

Not to crow, but that's just as I expected. On Friday I stuck my neck out and wrote that Alcoa stock was a buy despite the headlines -- and the stock is up about 3% in two days as a result, and ready to tack on some more profits at the opening bell.

Alcoa also is up almost 10% since New Year's Day, showing that -- so far -- it deserves my call as one of the top 10 stocks to buy and hold for all of 2012.

Now that I have the chest-thumping out of my system, allow me to turn to the matter I know you are most likely interested in: whether Alcoa remains a buy, and whether you should jump in.

Your answer: Jump in. With both feet -- right now.

Here are the details on Alcoa's earnings: AA met Wall Street's expectations on the profit side (or lack thereof, considering the 3-cent loss on the quarter), and revenue was above analyst forecasts. Alcoa revenue hit $5.99 billion, an increase from $5.65 billion a year ago. Forecasts were for just $5.7 billion.

This gain should not have surprised you if you've been watching Alcoa's numbers lately. This marks the eighth consecutive quarter of year-over-year revenue increases for the aluminum giant. And while the -3 cents on the quarter is a bit of black eye, keep in mind that the aforementioned restructuring will help Alcoa remain competitive in the long term. And despite that setback, earnings still managed to soar 270% over full-year profits for 2010.

The fundamentals of Alcoa are improving, and the company remains on the rebound. A slower global economy has hurt aluminum demand in industries ranging from construction to durable goods to automobiles, but AA is streamlined and prepared to profit in this environment -- and ride the recovery when it takes shape. That makes it a great buy-and-hold investment for 2012.

Before I stick my foot in my mouth up to the ankle, I must concede that a long-term play in Alcoa is like buying a fixer-upper home. Sure, if you get the house in order, you just got yourself the bargain of the century -- but what if you discover there's more at play here than threadbare carpets and outdated bathrooms? What if there's termites or a leaky foundation that mean your "bargain" home is really a money pit?

This is assuredly a risky play. And I have made my share of bonehead calls on risky plays, believe me. Those with a good memory will remember me patting myself on the back when Bank of America (NYSE:BAC) hit $14 in 2011 ... and we all know how that ended up months later.

But I remain convinced that over the long term, there is a lot of upside and limited downside in Alcoa. Most of my arguments in my initial recommendation for Alcoa in December are valid -- and have only been reinforced by this latest earnings report.

Granted, there are 357 days left in 2012 -- so I am counting my chickens before the eggs are laid, let alone hatched.

But I remain convinced that Alcoa is a great buy for the long term, and investors should have even more confidence in this stock after earnings.

Full disclosure: I did indeed put my own money in this stock, too, as a way to put my money where my mouth is with this Best Stocks of 2012 contest. I purchased 540 shares of AA stock at $8.95 on Dec. 14. I hope that adds a bit of realism to my commentary on the stock across the year!

Disclosure: I am long AA.

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Tagged: , Aluminum, Earnings, SA Submit
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