J.P. Morgan recently downgraded Alcoa to "Underweight" with a $50 price target, causing shares to drop 3.1% on Thursday. Analyst Bill Peterson warns that Alcoa's current valuation sits five times above historical norms, creating an unfavorable risk-reward balance.

Rising supply from Indonesia and uncertainty regarding Section 232 tariff relief for Canadian operations pose significant threats to the company's performance.

Although Alcoa struggles, Peterson favors copper due to ongoing supply disruptions and a weakening dollar. Therefore, Freeport-McMoRan is now preferred over aluminum players. Investors are advised to be cautious as aluminum prices may decouple from copper, leaving Alcoa vulnerable to further declines.