Alcoa raised to Buy at Citi as next leg of China reopening trade

Alcoa (NYSE:AA) +2.4% post-market Tuesday after Citi upgraded shares to Buy from Neutral with a $65 price target, raised from $55, citing a more positive outlook for aluminum from the bank's global commodity team.

Citi sees aluminum as the next leg of the China's reopening trade following iron ore and copper, and says aluminum "tends to arrive late to bull market parties, is relatively light positioned, and has a myriad of idiosyncratic upside risks as well as being exposed to macroeconomic- and ElNino-related supply side risks."

Citi analyst Alexander Hacking acknowledged Alcoa's (AA) limited free cash flow, but he expects the stock will outperform "as the default North America exposure to aluminum."

Alcoa (AA) shares are fairly valued given the high risks of a recession, but likely will fly higher as soon as demand expectations improve, Leo Nelissen writes in an analysis published recently on Seeking Alpha.