Alcoa (AA)

Wouldn’t go into this just yet. It is still firmly in the value investor camp. Starting to gain traction and commodity stabilization is starting.

(Top Pick June 2/15, Down 29.16%) They are a low cost producer and can still generate cash flow at reduced commodity prices. You have to step in at low prices because if you wait for the commodity price to increase you will miss it.

(Market Call Minute.) This is looking a little bit cleaner now and has gone through some really tough stuff. He would give it a little more time.

This is a Short for him. It falls into the cyclical category of stocks, but doesn’t hit enough of his metrics to be a Buy. Low ROE at 6%. It also has a debt problem. Weak price momentum. Very volatile. 1.3% dividend yield.

A pretty solid company. They are splitting their upstream and downstream operations. She is not putting money into the commodity space as she would rather wait for everything to stabilize.

Chart shows a rounded bottom running from 2011 to 2014, and then it topped. A classic top with a bunch of peaks, and then it broke the neck line, tested, and then fell further. Since that time it has been pretty much in a downtrend. Until it bases, he wouldn’t touch this.

Tied to the commodity complex and so he shies away from it. They are not in control of the commodity. There has been a historic oversupply of aluminum.

In the process of splitting into 2 different companies. Commodity will be one and “value added” the other. US auto demand, in terms of aluminum, will be rising sharply over the next couple of years because of new emission standards. Every time they increase emission standards, cars incorporate more aluminum. Increasing Chinese supply has been putting pressure on aluminum pricing. Supply demand is slowly coming back into a better picture, and he thinks over time this is worth double the current share price.

We are back to the $8 level that it was at when they took it out of the DOW. You have to think there is value here as it is at the lows of 2012/2013. He would have half a position right now.

Doesn’t have a lot of investments in base metals because the dollar is strong and there is weakening demand from emerging markets. They are splitting the company in 2. Aluminum is not a commodity that China needs to import. They can produce it domestically.

This has very strong seasonal characteristics. Historically it moves higher from around the latter part of November right through until late April of each year. Technically the stock is not looking good. It is still in a downward trend and has recently hit a new low. There are no signs of a bottoming yet.

The problem is that their destiny really isn’t in their control. There has been an imbalance between supply and demand with far too much supply. Have been shuttering production for years to try and create more of a balance, but the wildcard is China which produces a ton of aluminum.

His concern is that they didn’t control a lot of their own destiny. From a supply standpoint, there was a long history of oversupply in the industry and they have shuttered 30%-35% of their production, but they don’t control China. Chinese production has increased dramatically in the last 6-12 months and have flooded the market. Aluminum prices have fallen and this company stock price has gone down.

Not a big fan. They have been doing a lot of right things lately. They’ve been very, very aggressively trying to up-market their product closer to final end goods for premium industries like aerospace. Doing what they can, but aluminum is the most prevalent metal on earth. It never gets tight. Has had very little earnings growth for a very long time, and doesn’t have a ridiculously low multiple.

So much of the aluminum story depends on how well China is doing. There are some exciting things happening in aluminum. Aircraft sales are way up, and Ford (F-N) has moved into aluminum bodies for trucks. Until commodity prices start to get a little more stabilized, he doesn’t see money moving into the sector. A lot of these manufacturing companies are not about revenue gain, but operating cost cutting.