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!

Expectations Are Still High for Alcoa

Stocks in this article: AA CMC CENX

NEW YORK ( TheStreet) -- Last year will likely go down as a year Alcoa (AA) investors will love to forget. Not only did the company's stock wallow near 52-week lows for most of 2013 due to a brutal pricing environment, but the aluminum giant also lost its shine after being kicked off the Dow Jones Industrial Average.

How can we also forget that while the stock traded around $7.80 back in October, shares were downgraded to sell by Deutsche Bank analyst Jorge Beristain, who also lowered his price target to $5.50. Since then, the stock has soared nearly 35%. While "moral victories" aren't quantified in capital gains, I do believe that Alcoa management deserves a considerable amount of credit for having done more with less.

Today, even with shares closing Monday at $10.54, near the 52-week high, I believe the stock looks incredibly cheap. But as I've said on more than one occasion, it may be a while longer before aluminum prices return to their robust levels. The good news is, the worst is over. With Alcoa due to report fourth-quarter earnings Thursday, investors will be looking for hints of how management feels about the expected rise in global aluminum demand.

The Street will be looking for earnings of 5 cents per share on revenue of $5.43 billion, which would represent an 8% year-over-year revenue decline and continuing what we've seen as a weak top-line performance over the past couple of years. Chances are, this is also what investors should expect throughout the balance of 2014.

Accordingly, my price model for aluminum, which have been trimmed by 10% and 12%, respectively, for fiscal year 2014 and 2015, remains conservative. This, however, should not be considered an indictment on Alcoa or its management team. Unlike most, I don't expect Alcoa to manufacture growth out of thin air. Global demand for aluminum is isn't there yet.

The good news, though, is that Alcoa's management, which has always remained upbeat about the company's prospects, has maintained 7% demand growth in aluminum for this fiscal year, which was 1% better than what the company guided for last year. I believe another 7% demand growth target for all of 2014 will be encouraging.

For that matter, even if management were to project demand growth to, say, 6%, I don't believe investors should assume lack of confidence, either. It's not as if Alcoa has been outperformed by the likes of Commercial Metals (CMC) or Century Aluminum (CENX). What's more, even with operational deficits such as soft production shipments, Alcoa today still has considerable amounts of value. Investors just need to know where to look.

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 18,073.17 +42.96 0.24%
S&P 500 2,091.25 +9.37 0.45%
NASDAQ 4,813.4370 +39.9650 0.84%

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