Alcoa is at first and foremost, a growth stock. It pays such a small dividend that its overlooked (1%) and it is heavy on the cyclical side. This means that alcoas earnings are heavily dependent on the economy doing well. Alcoa is really dependent on people having the large amount of money to spend on the big durable products they sell. Alcoa needs people to feel good and confident also before they will buy products, so the media has to be doing its part and exposing bull markets when they happen. As with any cyclical/growth/non-dividend stock there is the greatest volatility. there is no dividend cushion and its priced on not only today, but the next 6 months. Now you might say well every stock is priced for the next 3-6 months or whatever, but growth stocks really need that confidence down the road because they are the first to fall and the first to rise when we see raw data that our economy is improving. The price of all cyclical stocks can be seen as a thermometer of how scared people are of a future recession or growth.
Alcoa draws it revenue from a lot of different sources they are a diversified company that shows the genius of man and his inventions.Lets look at some of their strengths, Alcoa is the biggest provider of Aerospace aluminum and has invented many of the alloy patents that we have used in space. Alcoa makes it own energy in plants that send it to their smelters and other factories and they sell the rest, this is a growing trend among large industrialists. Alcoa alumina makes chemicals that is used in the process of manufacturing aluminum, they use this themselves and sell the excess. of course they sell big blocks of aluminum that is to be made into whatever you can dream of. Alcoa sells many machinery essential to factories in America and around the world. Alcoa also is crucial for gas ad oil rigs construction. and finally Alcoa sells aluminum for packaging, this is cans, bottles, encasing on electronics and such.
(Aluminum items)
Alcoa has been on the ball with future sales also, they have been leading the car industry into safer, more gas efficient vehicles with there ultra-light alloys. The car industry is under order form the department Of Energy to make their cars get better miles per gallon. Aluminum is the best way to achieve this without compromising safety. The researchers here have made alloys before and the company works very close with regulators and the auto industry to stay on top of this growing market. Aluminum has a huge future in cars with the increasing regulations, shrinking oil supplies and dedicated research teams finding new alloys.
(its probably made out of aluminum)
Another field that Alcoa has been seeing to grow in the future is in Aerospace. This is a very long term goal with space being the final frontier. These guys have done a great job in the past making new metals for space and will continue in the future. We may one day get an amazing invention from them that can withstand the vacuum of space, while being 1/4th an inch thick. This makes it a real tech growth stock to me. We have a future in space and we need vehicles to get there. Alcoa is the company best able to capture that right now. I really think they will dominate the space market with their cutting edge alloys.
(Certified Gold on LEED green certification)
Construction is a big use of Alcoa's aluminum also. Aluminum is light enough to stack many layers and it is shiny, people have a natural affinity for its color. Not only is it aesthetically pleasing but its a great green metal to build structures out of. With the increase of all metals we have been seeing with the increased construction in China and India more metals are being commercially used in building. this is making aluminum cheaper when compared with the usual cheaper metals for construction. Aluminum is favored by a lot of green-movement people because 95% of it is recycled.
Industrial products comes to ind when a lot of people think of Alcoa and they do well in this also. Industrial products are big machines that need aluminum parts or may be made almost entirely out of aluminum. These are the big machines that make all goods and when we see a growth happening in the future then there will be plenty of factories worldwide that want to make some improvements. lately low interest rates and Obama's rapid depreciation policy have shown a small piece of what it could look like in a regular economy. I think that this section will grow the most as far as percent of revenue in the short term.
lets take a step back from their product line and look at them with our accounting hat on. The company's 52 week range is $11-18.50. The projected P/e next year is 8.93, PEG is .27 and it is trading 20% lower than its book value. Profit has been growing off of the chart with 136% over last years numbers. The company has a current ratio of 1.36 (if all its debt came due right now they could pay it off 1.36 times). There costs of revenue has not been growing in proportion to their revenue, so they are becoming fully utilized and more efficient at it. They grow their plants, properties and such at about 5% a year. about 60% of the stock is owned by mutual funds and that means that they when they jump on the stock will have amazing momentum (you do not want to buy a stock after every mutual fund owns it).
There are many little reasons that I have missed including Aloca's employees volunteering a lot of their time for the community, giving good brand equity to Alcoa, awards from fortune and Bloomberg, very low credit default swap rates of around 1.5% (means people have a lot confidence they are not going to default). They have grown 9%, while competition has declined an average of 7%. Increasing demographic advantages like the urbanization of the world and more energy being used by every person on earth are in Alcoa's favor (Alcoa makes a lot for equipment for power plants). Globalization has been nice to Aloca's with Investments coming online in the BRIC countries Brazil, Russia, India and China in the next 2 years.
Alcoa has not been bouncing off the wall like it should though. Jim Cramer came on his show "Mad Money" and pointed a lot of this out, people are still ignoring these guys. It may be because of the danger they flirted with being close to single digits. Some people may have gotten burned heavily on these guys they did drop about 50% for some portfolios in 2010. Alcoa is also a very well known stock. Many people use Alcoa as the traditional cyclical example.
You need to also read about their new plant expansion in Iowa. Alcoa says that they need a factory in this area to meet regional demand. They believe that there is agoing to be a future ahead of them in these region obviously. this could be a mis-timed business decision, but companies do not build factories if they doubt they can sell what it will make.
I have come to the conclusion that the market is wrong for these guys. I can not find any justification why they have not grown more than they have. European debt issues and unemployment at home are the closest I can come up with. like I said earlier, this stock is not priced on the next 2-4 weeks. These guys are usually only bought when the unemployment rate is falling and consumer spending is going up. It comes down to the question of how long do you think it will take for us to start seriously dusting ourselves off.
I recommend that you buy Alcoa (I do not know your particular circumstances, so talk to your adviser first) because I do not want to buy it a couple dollars higher. You do not want to get into a stock after people have started to buy it up and its screamed on every financial news show. You look for the sleeping giant that is going to blow if you have the right catalyst (action or event that majorly changes a stocks situation: good jobs report, new supplies of aluminum found or a Depreciation tax credit being announced. I think Alcoa can double in 2 years if we can get some positive reports.
They have had a 136% increase in profits though and almost no change in stock price. Now that's a pretty damn good reason to invest giving they are not harboring some grand secret.
(yep, you cant tell they have more than doubled profits looking at this)
You need to also read about their new plant expansion in Iowa. Alcoa says that they need a factory in this area to meet regional demand. They believe that there is going to be a future ahead of them in these region obviously. this could be a mis-timed business decision, but companies do not build factories if they doubt they can sell what it will make.Thanks for your time and see you later, I am off to write a report about Coca-Cola or Goldman Sachs next.
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