Of course, I need the obligatory disclaimer . . . I AM NOT ADVOCATING THAT YOU BUY THIS STOCK. I AM WRITING ABOUT MY VIEWS AND OPINIONS OF THIS STOCK. I HAVE NO BUSINESS CONNECTIONS WITH THE COMPANY AND NO ONE GAVE ME ANY COMPENSATION FOR WRITING ABOUT THE COMPANY. I DO HAVE A LONG POSITION FOR THIS COMPANY IN MY PORTFOLIO.
First things first, aluminum like steel is incredibly dependent on the economy and the country's demand for infrastructure and durable goods. In more easily understood terms, as the economy improves and there is more construction and more purchasing of cars and other big ticket items increases then profits of aluminum and steel companies gets better.
Second thing, there is a world glut of aluminum right now, primarily due excess production China over roughly the last two years. The excess aluminum has forced the price of aluminum lower. With lower sales due to the economic conditions of the last few years and lower sale prices due to excess availability, Alcoa has had to fight remain profitable over the long run.
Okay, so that doesn't sound so great, right. Economically speaking, it isn't so great but what Alcoa did in the face of the adversity is second to none. Alcoa has become the master of efficient low cost production. The bottom line, there are very few companies in the position to take advantage of the economic turning around in the way that Alcoa is.
So lets look at the numbers . . .
52-week price range $7.90-$9.93 ($8.20 close June 13, 2013)
Book Value - $12.50
Dividend - $.12 per year (~1.45%)
2013 Earnings are projected at 4x compared to 2012
The rest of the fundamentals for Alcoa really show just how well management runs the company.
Technically speaking there is no exact way to determine when Alcoa share prices will start to recover their lost ground. My model suggest two critical price levels for the stock. The first level is $9.00 per share. Once the share price hits this level, I am confident we will see the real signs of an economic recovery starting in earnest. At the second level, $10.00 per share, the economy will have regained its foothold. When is all of this supposed to happen? I don't have a clue but I strongly suspect it will be within the next 6 months but please don't hold me that fact.
Anyway, the wizards of Wall Street have Alcoa rated as anywhere from a strong buy to hold with a 12-month target price of anywhere from $11.00 to $20.00 per share. My model gave my a false buy signal earlier this year but such is the nature of mathematical models. In my various scenario simulations, it appears it will give me another buy signal at $8.75. In anticipation of that buy point, I am actually jumping the gun on my model and have already started accumulating shares. My projections give Alcoa a 12-month target price of roughly $16.00. Maybe I shouldn't be jumping the gun on my model but I am really impressed with what the company has done over the last couple years and at current price levels, I'm buying assets at a 33% discount.
Price Chart: AA 1-year w/ 50-day and 200-day SMA
So, I am going to jump the gun here as well and make Alcoa the next addition to the Magic Money Machine Portfolio.
07 June 13 - 1000 shrs IAG @ $5.29 per share. (BUY)
13 June 13 - 500 shrs AA @ $8.20 per share. (BUY)
Magic Money Machine Portfolio (13 June 13)
Cash: $40,620.00
1000 shares IAG- $5.25 $ 5,250.00
500 shares AA - $8.20 $ 4,100.00
Total $49,970.00
Change (0.06%)
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