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Despite Earnings Hit, Alcoa Is Down but Not Out

NEW YORK (TheStreet) -- Alcoa (AA - Get Report), the industrial metals giant, is down 6% Friday after being hit with a one-two punch: fourth-quarter earnings that fell short of analyst expectations and a settlement with the Securities and Exchange Commission over alleged for bribing of officials in Bahrain.

Long-term investors should look upon this as an opportunity to buy Alcoa at a discount. The stock is up for the month (5.5%), quarter (21%), six months (27%) and year (12.5%). As with Wal-Mart (WMT), Caterpillar (CAT) and other blue-chips, when issues arise and the share price falls, savvy investors such as Warren Buffett step in to buy for the long term.

As detailed in a previous article, Warren Buffett did this with Wal-Mart during the period in early 2012 when allegations of bribing Mexican officials surfaced. While Buffett has done well with his Wal-Mart buy, one of his greatest investments ever was in American Express (AXP).

In 1964, American Express stock fell by half due to fraud by Allied Crude Vegetable Oil that "scammed creditors for big loans." Buffett bought $13 million worth of American Express stock at that time on the dip. At present, that position is now valued at well over $2 billion.

Alcoa has suffered from the commodities slump of the Great Recession. In May 2007, Alcoa was around $41.50 a share. It bottomed out at under $6 in early 2009. Now it trades around $10.

I think Alcoa has a bullish future that should please growth investors. The earnings-per-share growth is on a very positive upward trajectory. Over the past five years, earnings-per-share growth was down by 43.90% but this year earnings-per-share growth is up by 21.01%. The analyst consensus sees earnings-per-share growth continuing to increase at a 21.90% clip for the next five years.

For value investors, Alcoa is at a discount.

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