Morgan Stanley's Evan Kurtz sees a buying opportunity in Alcoa (AA -0.5%) after shares shed 6.2% during the last month, believing the market has overly discounted a significant drop in aluminum prices.
The analyst says AA moved nearly in lockstep with aluminum price since the Arconic spinoff, but the two began diverging over the last two weeks, and thinks investors have become overly concerned with the sustainability of the aluminum price.
Kurtz says the stock is now pricing in $0.79/lb. aluminum compared to the $0.89 spot price, which positions AA to better withstand any potential weakness in the underlying commodities in the coming months.
The firm rates AA at Overweight with a $43 price target.