This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Will Alcoa's Aluminum Shine for Investors?

Stocks in this article: AA

NEW YORK ( TheStreet) -- With aluminum giant Alcoa (AA) due to report first-quarter earnings on Monday, investors are stuck trying to figure out whether the stock is a value play or a trap.

This is not an easy question to answer given the state of the aluminum industry, which has been hurt over the past year due to low prices. But that's not to say realizing value is impossible.

When comparing Alcoa's current share price to its historical norms, the stock is cheap. But that only meets one requirement. While management has done a great job of making the best out of a bad situation, it remains unclear when aluminum prices are going to pick up again.


Placing a bet on Alcoa here will require patience. But if the company's recent performance serves as indication, investors will be rewarded. The Street is expecting earnings to arrive at 8 cents to 10 cents a share. Meanwhile, revenue is expected to decline slightly to $5.9 billion, down from $6 billion last year.

Ordinarily, this would be a concern. But again, this is not a company-specific fundamental problem. Alcoa has overcome low expectations each of the past couple of quarters, despite an 8% revenue decline in the fourth quarter. The issue is with soft production shipments.

The company still managed to beat Q4 Street estimates. Likewise, profitability improved significantly. Net income arrived at $242 million, or 21 cents a share -- exceeding the net loss of $191 million, or 18 cents a share in the year-ago period.


What's more, gross margin advanced 4% and the company posted a 200% surge in operating income, aided by the sales of the Tapoco Hydroelectric Project facility, which generated a gain of $161 million after taxes.

More than anything else, this type of performance is why the company's management stands out. As I alluded to above, although the aluminum prices may not immediately rebound, the company is still in great hands. In that regard, Klaus Kleinfeld, Alcoa's CEO said:

"Alcoa hit record profitability in our mid and downstream businesses, and continued to drive efficiency in our upstream businesses in the fourth quarter, all while cutting debt and maintaining our cash position. We overcame volatile metal prices and global economic instability to deliver on our targets for the fourth year in a row. We enter 2013 in a strong position to maximize profitable growth."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs