Alcoa

AA-N

(A Top Pick November 28, 2017. Down 4%). Alcoa suffered from the trade barriers, but with the USMCA agreements, he thinks that the tariffs will come off and Alcoa will do better.

Metals look interesting, but he would consider other names before Alcoa. Hold, don't sell this.

Aluminum remains a growth metal. He owns it because Aluminum is in a sweet spot as Chinese production has come off. You rent this stock, you don't own it. It is the right moment in time for this one.

A cyclical stock. Aluminum is in a sweet spot as the Chinese cut back on capacity. There'll be a premium of aluminum prices. Rent, don't buy this stock. There could be share buybacks and dividend increases next year. Earnings will
double in the next three years.

A tough one to analyse. They’ve put themselves in the position of being a low-cost producer of aluminum. Being a low-cost producer of aluminum is a mixed blessing, because you have high cost Chinese competitors that don't have to make money. They can lose unlimited sums.

Spun off its Arconic unit last year, making it a pure aluminum play again. Aluminum is in the sweet spot of metals, because it is a growth metal. Because it’s a light and strong metal, every new generation of cars and planes uses more aluminum, being more fuel efficient. They have a pristine balance sheet and minimal debt. Throwing off massive free cash flow. After years of suffering through very weak pricing environment for aluminum and alumina, the pricing cycle is starting to turn. A low-cost producer and poised to generate significant earnings growth. Trading at 28.7X trailing 12 months earnings, and he is looking for earnings to double over the next 3 years. As a cyclical company, you have to buy when the PE is high, and sell when the PE is low and it looks like a cheap stock. (Analysts’ price target is $55.)

The only mining stock he owns, because aluminum is a growth metal. Because it is light, every new generation of cars and planes has more aluminum. Aluminum has been in a down cycle for a long time. Alcoa has split itself into 2 companies. For aluminum, the up cycle is now here. This is a cyclical stock, so when it starts going up even further and looks really, really cheap, it is probably time to start looking at selling it, because it is a pure aluminum play.

Chart shows this was in a gently trending down-trend since February, and then broke out in June. The stock looks great, plus it is metal products and materials seem to be doing okay right now. The price of aluminum seems to be in an uptrend right now.

Being in the materials based metals space, it will be a beneficiary in a cyclical environment where earnings are going to start to grow. Share price has weakened off a little, along with the rest of the market. It has come down to the 100-day moving average which could be interesting. RSI is down to about 45, and it hit oversold levels about a week ago. It is certainly a name you could consider owning.

Split into 2 companies, Alcoa (AA-N) and Arconic (ARNC-N). He likes them both. Alcoa is a classic deep cyclical, where he bought it down 75%. Shares have rallied, but this is the commodity side. With all the shutdowns, aluminum demand is outstripping supply, so Alcoa has started to rally, with the new US rule requiring more aluminum content in cars. Arconic is a great value added area. These are cyclicals, so you buy them when they have no earnings, and sell them when they are selling at 6X earnings.

Manufacturers of aluminum have not been very good stocks. Profit margins are not very good. He does not like to own stocks that lose money at the bottom of a cycle, and this is certainly one of those companies. There is a lot of risk with this.

(Market Call Minute.) Not particularly good momentum, highly volatile and low ROE’s. Has not been able to grow earnings. This is a Short for him.

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.

His outlook is not good near to medium term. Your major buyer is China, but they actually produce aluminum themselves. The outlook is not good.

This has turned itself from a metal basher into manufactured products. As the weight of a car or a plane comes down, aluminum is used more and more. Over the last year, this one is off about 7%. It is probably worthwhile putting in a longer-term position, as they should do well because of its major product and what it does with it will be used more and more.

This has been over $30 five times in the last 15 years. It is a cyclical company, so you have to rent it, not own it. They are in a sweet spot right now. Have made a bunch of acquisitions and have gotten more into the value added part of the aluminum business. Aluminum prices are historically low, but this is still throwing off free cash flow. Earnings are at about $1 a share and US auto demand is going to rise 25% over the next couple of years, simply because of emission standards. Dividend yield of 0.95%.

If he had to own a commodity, aluminum might be one that he might want to look at. The problem with this company is that aluminum is the one commodity that they actually make and export out of China. He wouldn’t have too much money in commodities at all right now.

Not a fan of most commodities. We still have longer to wait. Commodity cycles are very long, and we are in about a year 4 or 5 of the latest downtrend. One thing that bothers him is that China is a net producer of aluminum, not an importer.

Aluminum is not that attractive to her longer term. All commodity prices have been declining. They are trying to diversify into other applications, such as a recent titanium maker.

Aluminum prices are depressed, but this company is not dependant on the price of Aluminum. He would buy for a new client today. You need to buy it when earnings are depressed like they are now. The auto sector is moving to more and more aluminum in cars. A lot of the high cost production has been shut in so the supply has reduced.

We are seeing weakness in all the metals, primarily because of the situation in China. For the longest time, commodity prices have been driven by what is going on in China. The Chinese government and their central bank is trying very hard to keep growth going forward. While this is going on, it is very difficult for metal prices in general to make any progress. One thing in this company’s favour is the expectation of a lot of aircraft orders. He is not sure it is enough to counteract the slow growth in metals globally.

Bottoms around the end of January and moves higher to the end of May of each year. Is not in an uptrend. It is below its 20 day moving average. He is watching it to see if it bottoms.

Came down to EBV -3 and now you get a double. $15 model price, -2% at its current price. He would sell and look elsewhere.

Aluminum is one of the better commodities. AA-N is a good company to own.

Up 85% or so in the last 12 months. Given that a lot of car companies are moving to lighter cars and using more aluminum in car production, this has helped the stock. In the materials space, aluminum is probably one of the better ones to be in, compared to the deep mining. At this point, he thinks this stock is starting to reach fair value.

This has done very well. People became bullish on aluminum recently. The increase in usage of aluminum in the automobile is giving more credence. Costs have come down for them because the price of aluminum is relatively flat. Stock has more than doubled, so if you own, he would be inclined to take some profits. He thinks you have seen the best of your gains at this point.

Has done well in price appreciation, largely on the back of cost-cutting. Their revenues have not grown appreciably. The smelting business, up until recently, has been in business of trying to create demand by cutting off supply. A big part of their mining is done in China, which they don't control, and that gives him pause. The good news is that the downstream business has really picked up. However, he would still pass.

Stock has done quite well because near-term, aluminum prices have had a temporary imbalance. There is a lot of excess capacity so she doesn’t think the price is sustainable. This is a commodity that China produces and which they don’t import. She would prefer something like copper.

This has done very well and is probably a Sell. Aluminium prices increased by about 15%-20% in the last 3 months, due to some production curtailment. This is one commodity that China produces domestically. Capitalization in this industry is quite low at about 78%, which means there is plenty of capacity out there.