Alcoa Will Be King in 2012
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With every downward tick, Alcoa’s already positive outlook for 2012 just gets better and better. Unlike what some analysts have predicted, positive growth for Alcoa (NYSE: AA) is not dependent on a broad economic recovery. Would it help? Of course, but even slow growth will positively impact this overly sold industry stalwart. And that’s not all AA has going for it.
With today’s drop, Alcoa’s $8.59 stock price is the lowest it’s been in over two years. Are things really worse today than they were two years ago? I don’t think so. But the all too familiar macro economic pressures and sentiment took their toll, along with fundamental factors like slow demand and depressed prices.
Naturally AA wasn’t the only company hit, Freeport–McMoRan Copper & Gold (NYSE: FCX), Brazilian firm Vale S.A. (NYSE: VALE) along with other basic material firms felt the pinch.
A Number of Positives
In addition to being oversold, Alcoa offers investors a couple of other positives to consider. The company is positioned to take advantage of what should be a strong year in automotive and airline manufacturing. Last month’s announcement of an agreement between AA and Embraer S.A., the leading airline manufacturer in Brazil, is indicative of that and bodes well for investors.
The agreement is for Alcoa to provide aluminum alloys, design and fastener expertise for Embraer’s high performance fuselage and aircraft wings for their entire line of aircraft. Embraer is the leading manufacturer of smaller aircraft, in other words up to 120 seats, and a major Brazilian exporter.
And then there is the expected increase in auto production in 2012. As an aluminum manufacturer Alcoa may not benefit to the extent steel companies will, but it certainly isn’t going to hurt. As car makers continue their search for fuel efficiency, reducing weight is an obvious choice and so, by extension, is the increased use of aluminum.
When it’s all said and done, Alcoa simply has too many upsides heading into the new year to ignore. Even as some analysts have downgraded the stock’s target price, the buy recommendations remain in place. If AA does nothing more than hit its mean target of $12.61, investors are looking at a near 50% pop. What really makes Alcoa interesting is that return may be on the low end before 2012 has come and gone.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.
