Title: Portfolio Update — A Fall '25 Pick That's Up ~50% (Alcoa); Alibaba moved to Hold Show: Haymaker (Substack) — Portfolio Update #288, paid Guest: David Hay (Haymaker; co-founder/ex-CIO Evergreen Gavekal) Date: 2026-JUN-29 URL: https://haymaker.substack.com/p/portfolio-update-288 Length: written post (no timestamps) Note: Written paid Substack Portfolio Update read in full via Stephen's logged-in Chrome and saved verbatim (clean text, real &). Two portfolio names reviewed: Alcoa (AA) rated HOLD, and Alibaba (BABA) moved from Buy to HOLD; Norsk Hydro (NHYDY) referenced as the European aluminum sibling. David Hay runs designated Haymaker portfolios (portfolio.json tracked). ================================================================ === ALCOA (NYSE: AA) — rated HOLD === (Figures as of June 26, 2026. Stock ~$54, up ~50% since recommending on 10/31/25. Next earnings July 15.) THE SETUP When we recommended AA last October, we felt strongly that aluminum's essential role in EVs, energy storage, the build-out of AI infrastructure, and other green technologies was being severely undervalued. Alcoa remains one of the world's largest integrated aluminum producers — bauxite mining, alumina refining, and aluminum smelting — with operations across Australia, Brazil, Canada, Iceland, Spain, and the U.S., plus a 25% stake in the Ma'aden Saudi joint venture. It is, like Hudbay in copper, a physical-layer play on the build-out: aluminum is the lightweight conductor of electrification (EVs, grids, packaging, construction, and increasingly data-center infrastructure). We were such believers in the aluminum theme that we suggested recycling AA trim proceeds into Norsk Hydro (NHYDY), essentially the Alcoa of Europe and a beneficiary of low-cost Norwegian hydro power, in December '25 — since then up ~23% (at one point +60% from our tout). As a cyclical industrial caught in geopolitical turbulence, Alcoa has roller-coastered from ~$28 to $84 and back to $54 inside a year. The question is whether the ~36% pullback is an entry point or a warning sign. Our honest take is somewhere in between, and the reason is all about tension. THE BULL CASE Aluminum prices recently reached their highest level in over four years, driven by Middle-East supply disruptions and the Strait of Hormuz standoff estimated to affect up to 3.5 million tons of 2026 output. Layer that acute tightness on a structural demand story (EVs, grid, packaging, data centers) and you have a metal with both a cyclical spike and a secular tailwind; Alcoa is a direct, high-beta beneficiary. Yet AA's correction has been even more pronounced than the metal's — like so many commodities in structural deficit, aluminum has been acting like there is a glut (similar to oil), which may speak to a growing global liquidity squeeze. AA's financials swung hard to profitability in 2025 (revenue $12.83B, earnings a bit north of $1.2B). Q1 2026: aluminum segment strong on higher LME + Midwest premium, net income $425M, adjusted EBITDA $595M (+~13% sequentially); completed the San Ciprián smelter restart; deleveraging (prepaid $219M of 2028 notes, ~$2.8B cash, retired ~$1.6B of preferred, ~$400M net cash) — a fortress balance sheet, with 2026 and 2027 free cash flow projected to double and double again. U.S. Section 232 aluminum tariffs support the Midwest premium. Consensus target ~$80 (~50% above current); UBS upgraded to Buy at $80; 14 analysts Buy. THE CATCH — LONG ALUMINUM, SHORT POWER Aluminum smelting is one of the most electricity-intensive industrial processes on earth; power is the dominant variable cost. So Alcoa is simultaneously LONG the aluminum demand that AI/electrification create and SHORT the power the same AI buildout makes scarce and expensive — the exact thesis that makes us constructive on the power complex is a cost headwind for Alcoa's smelters. Management hedges much of it (<1% of smelting electricity exposed to spot; long-term contracts, Spanish gas hedged through 2027), so the exposure is managed, not naked, but the structural point exists as contracts roll. Near-term costs are already deteriorating: a ~$60M unfavorable Q2 alumina-segment impact from higher refinery costs, cyclone disruptions, and higher energy prices tied to the same Middle East tensions (the stock dropped ~10% on the revision). CYCLICAL + GEOPOLITICAL RISK The alumina segment (half the integrated business) posted negative segment EBITDA in Q1; the "strong quarter" was the aluminum half carrying a struggling alumina half. Operating cash flow was negative in Q1 at $(179)M; earnings benefited from one-time mark-to-market gains on the Ma'aden stake. The elevated aluminum price underpinning the bull case is partly geopolitical — if Middle East tensions ease and the 3.5M-ton supply threat recedes, the premium deflates and Alcoa's price-levered earnings fall with it. China's perennial aluminum overhang and two-way tariffs (~$35M Q2 cost on Canadian imports) round out the risk. High-beta name; size accordingly. VALUATION At ~$54 AA carries a low multiple on 2025-2026 earnings, but those are cyclically elevated on four-year-high aluminum — the "cheap" multiple is the classic cyclical mirage (we prefer price-to-sales on cyclicals; AA's P/S remains on the high side). EV/EBITDA ~7x on the ~$2.2B run-rate (Q1's $595M annualized) but ~9-10x on mid-cycle EBITDA of ~$1.6-1.8B — cyclical smelters typically trade 5-7x mid-cycle. Cash flow is weaker than earnings imply (2025 FCF $594M ~4.2% yield, but Q1 2026 FCF −$298M; ~$300M+/yr environmental/ARO remediation is a drag). Triangulated fair value is almost entirely a function of the aluminum price: mid-cycle EBITDA (~$1.7B at 6.5-7.5x) nets to ~$36-42/share (below current); current elevated conditions justify ~$52-55 (roughly where it trades); the bull case (aluminum holds near peak) gets ~$66; the Street's ~$80 requires prices to rise. At $54 the stock is fairly valued on cyclically elevated prices, ~30-50% above ~$36-42 mid-cycle value; the ~49% upside to consensus is pure leverage to aluminum staying at four-year highs. THE BOTTOM LINE A well-run integrated aluminum major with a genuine electrification-demand tailwind, at a more reasonable level after a ~36% pullback, with real analyst support — but a high-beta cyclical on partly geopolitical peak metal prices, weak alumina segment, deteriorating near-term costs, soft cash flow, and the structural irony that the AI-power buildout it benefits from on demand raises its costs on supply. Prudent to HOLD at the current price and add on weakness; not a back-up-the-truck buy. Take a small position here if you want the exposure, size for volatility, and reserve the bulk for confirmation that costs are stabilizing (the July 15 print) or a deeper pullback toward the low-$40s. We rate AA a HOLD, sized for cyclicality. === ALIBABA (BABA) — moved to HOLD (from Buy) === We recommended Alibaba in late February as the cheap China-AI-champion re-rating play. It has gone against us — ~$95 (a 16-month low), down roughly a third from entry, with ~25% of that loss in the past month. The core engine is working: Alibaba Cloud growing ~38-40%, AI products ~30% of external cloud revenue, the Qwen open-source ecosystem among the most widely deployed globally. But the cost broke the thesis: Alibaba posted its first operating loss since early 2021, non-GAAP net income fell more than 80%, and free cash flow turned negative on roughly $56 billion in AI and cloud spending — the China version of the same capex-versus-returns recalibration hitting U.S. hyperscalers, stacked on China's weakest GDP target in decades, chip-export risk, and a broad China-ADR selloff. On June 25, Anthropic (the maker of Claude) publicly accused Alibaba of the largest known "distillation attack" (alleging ~25,000 fraudulent accounts used to extract model capabilities); the WSJ-reported allegation pushed BABA to its 16-month low as ARK Invest and Michael Burry disclosed selling into the weakness. The thesis is partially intact and the stock is cheap against a $190-230 analyst target range (and $70B net cash cuts EV to ~$165B — a throw-away valuation for China's Amazon+Google combined), so we would not dump into a 16-month-low capitulation alongside forced sellers. But the profitability collapse, macro/geopolitical headwinds, and the new distillation overhang make this a longer, riskier pick. We are moving BABA to HOLD — keep a core position only for long-term China-AI optionality if you can stomach unquantifiable geopolitical/legal risk; more risk-averse readers add only once profitability stabilizes, and cut if China macro or the legal situation deteriorates further.