Alcoa Inc (NYSE:AA), a member of the Dow Jones Industrial Average (Dow Jones Indices:.DJI), is supposed to be a key indicator of economic growth. That's why its earnings report is usually one of the most highly anticipated reports each quarter. Though, it certainly doesn't hurt that it's typically one of the first companies to report.
However, while the rest of the economy is recovering it seems that Alcoa Inc (NYSE:AA) has fallen behind. Over the past year its stock is down more than 13% while the Dow is up by more than 13%. Worse yet, over the past five years the Dow is up almost 20% while Alcoa's stock has crumbled by nearly 80%. Just take a look at this brutal chart:
Aluminum in general, and Alcoa Inc (NYSE:AA) specifically, appears no longer to be the key economic indicator that it once was. Even with a fairly positive outlook for aluminum, Alcoa Inc (NYSE:AA) just isn't producing much in terms of real returns for investors. That begs the question: Should this stock even be in the Dow these days?
It would make more sense, in my opinion, to have a more diversified miner added to the Dow Jones. In fact, I think the easy choice here is to go with Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). It's the second-largest copper producer in the world; given the outlook for copper, it's a much better metal to gauge economic growth. In addition to copper, the company mines gold and molybdenum, which is an important metal used in steel production.
While it has diversity among metals, the company is also in the final stages of adding even more diversity among commodities. It has pending deals to acquire both Mcmoran Exploration Co (NYSE:MMR) and Plains Exploration & Production Company (NYSE:PXP). When the deals close, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will shift its revenue mix from 100% mining related to around 75% mining and 25% oil and gas. That makes the company a truly diversified economic indicator as copper, oil, and natural gas are much more important to our economy than aluminum.
I will say that over the past year Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)'s performance hasn't been all that great. In fact, its stock has actually underperformed Alcoa Inc (NYSE:AA)'s stock by about 2%. However, I think its future is much brighter as it diversifies its revenue with oil and gas. Further, it has several important copper projects coming on line at a time when its tough to bring on new copper production.
In my opinion, the overall commodity diversity offered by Freeport is a better economic indicator than aluminum will be in the future. However, I'll stop short of calling for Alcoa Inc (NYSE:AA)'s stock to be dropped from the Dow. Instead, you might want to consider dropping its stock from your portfolio in favor of Freeport's.
The article Is It Time to Drop Alcoa's Stock From the Dow? originally appeared on Fool.com and is written by Matt DiLallo.
Motley Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.
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