This Day On The Street
Continue to site right-arrow
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!

Alcoa Is Misunderstood

Stocks in this article: AA CMC CENX BHP

NEW YORK ( TheStreet) -- I don't always talk about industrial stocks, but when I do, I prefer Alcoa (AA). And that's because Alcoa is the most interesting company in what has been a brutal industry -- aluminum -- over the past couple of years.

During that period I've been beating the patience drum to anyone who would listen and detailing the prospects of not only a recovery in the price of aluminum but of the value that remains in Alcoa's stock.

I won't argue that my optimism has yet to translate into meaningful results. But Alcoa's management continues to make the best of a bad situation.

Although the management team does have a strong track record of solid execution, that doesn't mean it is able to manufacture growth out of thin air.

Investors disagree. After the company posted a 3% revenue decline in April quarter, shares of Alcoa dropped by as much as 8% in the sessions that followed. This is even though rivals like BHP Billiton (BHP) posted revenue declines of more than 14%.

With fiscal second-quarter earnings due out Monday, I believe it's time to reshift our focus on Alcoa's performance. I won't disagree that revenue growth is important. But I also don't expect a significant year-over-year improvement, either. Analysts are expecting second-quarter sales to come in flat to lower by as much as 20 basis points.

Truth be told, it would surprise me if the company posted any positive sales growth at all. Don't mistake this for a knock on the company's ability. But after watching the sluggish nature of this industry for more than three years, I think it's now important for investors to lessen their focus on aluminum demand and start appraising Alcoa more on its segmental performances -- particularly its respective after-tax-operating-income (ATOI) results.

Case in point: Although first-quarter revenue declined 3% in the April, the Street discounted how well Alcoa actually performed in first-quarter earnings-per-share, which produced the company's best ever quarterly ATOI of $137 million.

This is while the company posted an adjusted EBITDA margin of 21%. What this means is that amid the revenue struggles, management has figured out ways to still increase the value of the company, while curtailing operating expenses at the same time.

1 of 2

Select the service that is right for you!

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!


DOW 17,648.61 +291.74 1.68%
S&P 500 2,046.96 +34.07 1.69%
NASDAQ 4,722.2550 +77.9430 1.68%

Brokerage Partners

Rates from

  • 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