Alcoa stocks down by 50%

Alcoa Inc.'s aggressive focus on restructuring and cost-cutting strategies, expected productivity gains, diverse product mix, and cheap valuations are attractive enough for a long position in its stock. The stock is down 50% from its 52-week highs. However, some potential risks to our recommendation include the continual decline in aluminum prices (trading near two-year low levels), unfavorable settlements of Alcoa's litigation, and China's aluminum companies not cutting their production capacity to reduce aluminum oversupply.

Recommendation:
Buy AA now and add to position when:
1. Aluminum prices start to move up
2. Chinese aluminum producers announce supply cuts
The Aluminum Industry is currently undergoing a downturn because of weakening global demand of the metal, along with declining metal prices. As a result, major producers (including Alcoa) are cutting capacity in an attempt to impede declining prices. However, unlike global companies, China's aluminum companies have increased their production capacity and output. As a result, the oversupplied market and rising energy costs in China have raised global competition even more.

Unless China cuts unprofitable production to support the global market, aluminum prices are not expected to rise in 2013, according to Mr. Oleg Mukhamedshin, the head of equity and corporate development at Russia's RUSAL, the world's largest aluminum company.