Assessing the Trump Effect on Alcoa

Shares of Alcoa Inc. (AA) rose strongly last week, gaining 16.27%, boosted by the surprise victory of Donald Trump, which sent shockwaves around the world. Alcoa stock closed Friday at $29.20, compared with the prior week's close of $25.20.

Alcoa, as with other American metals and mining companies, is seen as a strong beneficiary of Mr. Trump's "America First" platform. The president-elect's strong stance to support more domestic manufacturing jobs and his aggressive actions to reduce imports should bode well for Alcoa's business, especially on the heels of the company spinning off its high-growth aerospace and automotive components unit into Arconic Inc. (ARNC). (See also: Assessing Alcoa's Post-Split Valuation.)

The remaining portion of Alcoa, which makes it a pure-play bauxite, alumina and aluminum producer, now needs more help. This is because the bauxite and alumina segments generated almost 50% Alcoa's before-corporate-expense adjusted EBITDA in the first half of this fiscal year. That business in fiscal 2015 accounted for more than 70% of Alcoa's after-tax operating income.

Alcoa's growth metrics have pushed the company to become North America's second largest producer of both aluminum slab and sheets to make drink cans. At the same time, Alcoa is the region's largest producer of sheets to make food cans, making Alcoa an important driver among American businesses dealing not only with packaging but also with the transportation and industrial sectors. (See also: Alcoa Stock Upgraded by Morgan Stanley.)

In that regard, Mr. Trump's aggressive actions to protect American manufacturing should create a stronger business environment for Alcoa, while strengthening America's domestic manufacturing base. Alcoa in October reported weaker-than-expected third quarter results, with revenue of $2.3 billion that missed the Street's forecast, pointing to weak alumina prices.

That was prior to Trump's victory, however, which seemed unlikely at the time. Assuming Mr. Trump's administration delivers on its promise to level the playing field against foreign imports, aluminum demand and prices should be come more stabilized. Combined with Trump's promise to increase infrastructure spending, Alcoa could benefit from multiple sides, which should fuel its share price in the quarters and years ahead.