Shares of Alcoa Inc. (AA) hit a new 52-week high of $10.70 on Dec 27 and eventually closed at $10.69.
Year-to-date, Alcoa’s share price has recorded a healthy return of 24.85%. Average volume of shares traded over the last three months came in at approximately 26,339K.
What is Driving Alcoa Up?
Alcoa’s shares gained on reports that Ford Motor Co. (F) will launch a new aluminum F-Series truck at the Detroit Auto Show in January 2014. The new, aluminum-intensive design will make the truck comparatively lighter. Alcoa produces military-grade aluminum that’s used in durable military vehicles and thus Ford has asked for samples from Alcoa to demonstrate the durability of the metal.
Alcoa turned out profit on a reported basis on the back of productivity gains and cost-cutting measures in the third quarter of 2013. Excluding one-time special items, earning was $120 million or 11 cents a share in the quarter, ahead of the year-ago earnings of $76 million or 7 cents and the Zacks Consensus Estimate of 6 cents. Productivity gains, strong demand from auto makers, healthy operating performance and cost cutting supported the results despite lower metal prices.
Alcoa is witnessing strength in the aerospace and auto markets. It expects 9% to 10% growth in the aerospace market in 2013, backed by higher air travel demand, new aircraft orders (roughly 900 orders were signed in Paris Air Show worth $135 billion), strong existing order backlog and a rebound in the jet segment.
The company anticipates even higher growth of 12% for large commercial aircraft segment. The auto industry is also showing strength. As per automotive original equipment manufacturers (OEMs), the use of aluminum in cars is expected to double by 2025 as automakers seek more fuel efficiency by reducing vehicle mass.
The company is pursuing strategies to narrow its cost curves in its upstream businesses, and record profitability in its midstream and downstream businesses. In keeping with the revenue targets, management is committed to improving margins that will exceed historical levels in the midstream and downstream operations. The company aims to achieve these goals by optimizing its portfolio and restructuring its high-cost assets.
Other Stocks to Consider
Alcoa currently carries a Zacks Rank #2 (Buy). Other players in the industry, which look attractive at current levels, are First Quantum Minerals Ltd. (FQVLF) and Rio Tinto plc (RIO). Both of them hold a Zacks Rank #2 (Buy).