Traders and Investors Take Opposite Positions on Alcoa’s Split


Nov. 20 2020, Updated 5:25 p.m. ET

Alcoa’s split

Alcoa’s split seems like the key driver of its price action this year. Even Alcoa’s 1Q16 financial results failed to have any material impact on its price movement. Though the stock did fall after the company missed consensus revenues and lowered its guidance, it recouped losses in the next couple of days. Meanwhile, market opinions on how Alcoa’s split will benefit its shareholders seem mixed. Let’s see why.

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Long-term investors

Long-term investors are betting on value creation after Alcoa’s split. It’s no surprise, therefore, that out of Alcoa’s top ten institutional shareholders, eight have increased their exposure to Alcoa (AA) after the split announcement as can be seen in the chart above. One institutional investor has cut its stake marginally after the split announcement while one has kept it unchanged.

Furthermore, along with the existing set of investors, Alcoa has attracted fresh institutional interest. Elliott Management, which bought a stake in Alcoa last September, has further increased its stake at the end of 1Q16. According to Elliott Management’s regulatory filings, Alcoa is “dramatically undervalued by the public market.” Elliott also added that Alcoa’s split would “create value substantially above the current share price.”

Post-split value

Long-term investors are betting on value creation after the split. Market players expect the value-added company, Arconic, will command a premium valuation multiple. References have been made to Berkshire Hathaway’s (BRK-B) acquisition of Precision Castparts though the two deals are not totally comparable. For more information, read Alcoa’s Post-Split Valuation: A Look at the Drivers.

Meanwhile, bears (RWM) seem to be taking diametrically opposite positions in Alcoa, which we’ll explore in the next part of the series.

You can also consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Together, Alcoa and Ball Corporation (BLL) form 4.8% of XLB’s portfolio.


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