About a year, or year and a half back, I put "AA" on a list of stocks I was watching. I think it must have come into what I thought was "value" territory, but I never bought it. Instead, I ended up purchasing BP at the $31 point, and I'm up 40+%.
However, today I saw something in the news about Alcoa, and I found myself wondering what had interested me in the stock. Return on investment certainly doesn't seem very large - low single digits. About 800 million in cash, and over 9 billion in debt. I'm a little worried that the interest payments on the debt alone could make then run through all their cash in a year and a half or so.
Can anyone enlighten me? It seems like this stock is more of a speculation than an investment.
You shouldn't buy AA unless you are sure you should buy AA.
I'm not trying to be cute. I won't try to convince you to buy one stock in one sector while comparing it to another company in a completely different sector.
What you need to know is mining is extremely competitive. 9 billion worth of debt has rates contractually tied to them and cannot arbitrarily be raised if the rest of the market interest rates go up. A little research will pull up the "due dates" when that debt will have to be rolled over, but that's in the 10q and should be looked up by everyone in the stock.
The company also has 38 billion dollars worth of assets and seeks to "keep the cash working". That, plus coming out of historically low aluminum prices has hurt their cash position.
I think you understand it precisely. Where you see problems, others see opportunity. I always look for stocks just coming out of troubled times and make value plays on the stock and it has served me well - I have had three solid years of gains during these difficult times.
As I look at forward earnings I conclude "the worst is behind them". When I look at aluminum pricing trends and pressures in the consumption market I see what I believe to be a secular consumption trend.
Compare today's price movements to KALU and you'll see that the market sees the two companies in the same light.
If you do not see it that way, I would be loathe to convince you to buy AA. Take it off of your watch list - it's not anyone's job to convince you.
What you need to know is people are seeing value here... nothing else.
Also for what it is worth - Long term debt due within one year is 200 million. Easily coverable by current cash positions.