This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why I Love Alcoa but Hate the Stock

NEW YORK ( TheStreet) -- Aluminum giant Alcoa (AA - Get Report) has always had an excellent management team. Aside from being in a business with excellent long-term prospects -- able to grow commensurately to the world's population -- the company's leadership team has always served as one of Alcoa's most attractive qualities.

However, these days I can't say the same for the stock. It's not because management isn't doing what it can to produce value for shareholders. Right now, Wall Street just doesn't care enough to wait.

In its most recent quarter Alcoa generated no EPS on revenue of $5.963 billion. However, when excluding special items, the company did earn 6 cents a share, topping analyst estimates of 5 cents. It also generated $246 million in free cash flow.

How should investors view this performance? Although the company did register a small beat, it was on estimates that have been revised lower over during the quarter.

The good news is Alcoa is performing as well as can be expected considering what it has had to deal with this year. This includes double-digit declines in aluminum prices that have adversely impacted both its gross margins, down 7 points, as well as operating margins, down 77%.

As it stands, year-over-year prices dropped 18% last year and 4% this year, negatively impacting not only the company's top line, but also its profitability.

So the fact the stock is at $8 is a testament to the respect and trust the company's management team has earned. But at the same time there is no near-term catalyst to suggest the stock should be trading higher from current levels.

By all accounts the valuation appears fair. For now, the company continues to work on productivity as well as efficiency improvements including reducing capacity.

In the long term, these moves will help improve the company's profitability while it waits for aluminum prices to stabilize. Alcoa continues to perform exceptionally well in its mid- and downstream operations while registering 20% operating margin in its Engineering Products and Solutions segment.

But it seems that we've been down this road before since this quarter was not much different from the first quarter.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AA $10.24 -0.78%
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%
TSLA $222.56 -4.20%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs