Alcan Aluminum (AL.TO) Buy, Sell or Hold

Alcan Aluminum (AL.TO)

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BUY

The acquisition certainly hasn't resulted in the kind of synergies, increase in earnings and dominance that many had expected. The recent weakness is an opportunity to BUY. The general view in the market is that maybe we are close to a peak in commodity prices and this would also reflect the price.

DON'T BUY

Not big fans. His model price is $49. One proviso is that they did the spin-off of Novelis (NVL-T) in January and he is still using a November balance sheet. Don't think it will be affected that much.

WEAK BUY

More of a consumer metal versus an industrial metal, so not as keen on it as nickel, copper or coal. However the global economy play is going to affect aluminum as well.

DON'T BUY

Has been the laggard in the metals area. Probably a combination of the earnings not being what they could have been as well as aluminum was the one commodity China was a net exporter of. Long term it is OK. Near term you are better off in some other commodity.

BUY

Has been a laggard. Of all the commodities, aluminum is the one that has probably had the least move to date. An oligopolistic type of industry. Well disciplined. Fairly tight in supply, so should move eventually.

HOLD

Prices of aluminum increasing. Stock could rise for another 1-2 years in cycle.

BUY ON WEAKNESS

Restructuring and changing in many ways. Good management. Have executed very well and have made some acquisitions that are going to work out over the long term. May take awhile. Would probably BUY at a little lower level.

DON'T BUY

Looks for long term growth industries and good track records and in this case, it doesn't qualify. Grew a great deal by acquisition. Its long term return on equity is single digit and you can do better with buying and holding over 5 years Canadian banks, Canadian life/health insurance and a number of leading businesses.

TOP PICK

Stock looks like it's down, but this includes the spinout of Novelis as well as miscommunication on a non-recurring charge. Trades at a discount to its NAV.By far the cheapest by P/E and Price to Cash Flow. Treat as a trading stock.

DON'T BUY

Doesn't feel they've been able to get the synergy from the Pechene acquisition. Feels that some of the commodity prices are in the processs of peaking right now. Have had some cost issues. Long term has been a well managed company, but feels they've missed on this cycle and the cycle is ending.

BUY

Has had a couple of miserable months which is largely illusory because of the spinoff of Novelis (NVL-T). Had a rather disappointing 4th quarter. There will be a softness in the market this year. Many companies filled their inventories in '04. A great stock to own on a 2/3 year hold.

DON'T BUY

Came out with worse than expected number last week and the stock got hit very badly. The stock has established a downward trend. Outlook for aluminum is still OK. Seasonality for Alcan runs from the end of September to the end of January.

TOP PICK

(A Top Pick Dec 2/04. Down 13%.) Part of the reason for it being down is the spin-out of Novelis, so it's about even. Are expecting rising operating costs and the commodity is not moving, but feels aluminum has more upside. Good price and the fundamentals have not changed. Trading around 7 X cash flow which is reasonable.

TOP PICK

One of the few stocks that looks cheap to him. Thinks aluminum will be a fairly good material going forward for the next couple of years.

DON'T BUY

Got up to a price level of about 1.5 X book and historically, this is as high as it ever goes. Even when it has FMV greater than that, it always stops there. This company is going to lag the market, so you won't make very much money on it.

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