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Alcoa's Aerospace Move Adds Compelling Value to Aluminum Miner

NEW YORK (TheStreet) -- Over the past several years, Alcoa (AA - Get Report) management has expressed ambitions for entering the aerospace industry. To some, this seemed nothing more than talk. But it's a great idea, and Alcoa is taking steps to make it happen.

From my vantage point, entering the high-growth aerospace area was a logical move for Alcoa, seeing as global aluminum prices have been under pressure due to commoditization. Plus, the company was dealing with excess inventory, competitive pressures and weakness in emerging markets, among other issues.

Getting into aerospace was going to take time, however. And Alcoa's CEO Klaus Kleinfeld made no promises -- only telling investors to be patient and trust that they'll be rewarded. The Dow (DIA), which kicked Alcoa off its index last year, didn't want to wait. That was a bad decision.

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Alcoa stock opened Wednesday at $15.24, up 48% on the year to date. As of 1 p.m., shares hit $15.65, up nearly 5.5% today alone. Shares are now up more than 98% over the past 12 months, making Alcoa one of the market's top performers during that span. Investors have made a lot of money. And Kleinfeld has been proved right.

And with the company accelerating its aerospace transition and now expanding into other types of metals like titanium and steel, investors need to start making plans for places to store their future cash. Safes made of steel or titanium might be a good investment over the next several years.

Today, Alcoa looks like a new company -- one that has established a focus on specialized products like alloy components for aircrafts. The company's recent $3 billion acquisition of Firth Rixson, a U.K.-based maker of jet-engine components, affirms management commitment to the aerospace industry.

Alcoa is also working to get aluminum into vehicles and lightweight trucks. Automakers like Ford (F), which has a new aluminum-bodied F-150 that is considered more fuel-efficient, may become an excellent source of long-term growth. Others like General Motors (GM) and Tesla (TSLA) may not be far behind.

What's more, defense companies like Boeing (BA), which has showed interest in using more aluminum in its jets, presents Alcoa with opportunities to push higher-margin products.

These markets, combined with Firth's projected EBITDA contribution of $350 million in the next two years, makes Alcoa one of the best long-term investments on the market.

With an improved aluminum environment, combined with the company's accelerated aerospace transition, Alcoa stock should $20 in the next 18 to 24 months, making Alcoa one of the best bargains on the market.

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