Alcoa (AA)

A very good, large cap aluminum producer levered to the US economy and into the global economy. There is a trend towards light weighting in cars as opposed to having a lot of steel in your cars. Feels it has good long-term prospects.

In general, he is not a big fan of the metals industry right now. A lot of capacity has been built in the last few years and China slowing down has an impact. However, this company is in a unique position. They have gotten rid of a lot of their commodity business and have focused on specialty products. Now focused on higher margin products.

(Market Call Minute) Commodity sector rolled over 18 months ago. AA has been a beneficiary of cyclical rally since.

F150 will have the amount of aluminum in it significantly increased. China has come down pretty hard on smelters who use a lot of electricity. Likely supply of aluminum coming out of China will lessen which is good for this stock.

Has trouble buying into companies that are really doing well because of cost-cutting. They really don’t control the front end of their business. Supply/demand metrics are still quite poor. There is much more supply than demand by about 700,000 tons. China really holds the trigger here on production.

Had been hoping to buy this last year at about $8.51. Reporting earnings tomorrow. Looking at it historically, it could quadruple from this point. Could be a buyer if it came down in price.

(Market Call Minute.) Had a good rally but got ahead of itself. She is not positive on aluminum so she would sell.

Aluminum is a growth metal. There are new automobile emissions standards in the US in 2016 so there will be a big run up in aluminum usage in US autos, which usually filters through to the rest of the world. Very bullish on this company.

Aluminum is a base metal that has always been in oversupply. Some would say it is higher cost supply, but it is abundant. This one is cheap for a good reason. 4.25% dividend, but not enough to hold on to it if you hold it. You have to have yield AND growth.

Great company but he would prefer a much more diversified company in mining, such as Rio Tinto (RIO-N), BHP Billiton (BHP-N) and Vale (VALE-N) which would give you a little bit broader base of assets that they are working on.

If they warehouse aluminum that would be positive for demand/supply implying that aluminum prices should stabilize. She does not buy into the aluminum sector because there is excess supply.

He would not be a holder. They have no control over pricing. They have done that very well but not a great business model for him.

He sees peak earnings for this company in the $2-$3 range, sometime over the next 5 years. Traditionally, when this happens, it starts to trade at 10-15 times earnings and you end up with a huge winner. You have to have the patience to live through zero earnings periods that we are in right now. A lot of high cost production has come off stream so supply is getting constrained. This should push the price of aluminum up. He sees a big bump in earnings coming by 2016.

The issue with this company is that they are really not in complete control with their own destiny, i.e., China is a big aluminum producer. This is one of those situations where it is just a pure commodity play and because of this, he would steer clear.

Just reported and beat expectations by a small amount. This is aluminum and this is a commodity that she does not have a positive outlook for. China is not an importer of aluminum. If the economic recovery continues this will be higher than what it is today but she doesn’t see a sustainable high aluminum price.