In this article, let's take a look at a new position initiated by legendary George Soros (Trades, Portfolio). The stock is Alcoa Inc. (AA, Financial), an $11.53 billion market cap company, which is one of the world's largest producers of aluminum and alumina.
Soros Fund Management initiated the new position with 5,338,700 shares worth $67.5 million considering the mean of the price range $11.15 and $14.15. Stanley Druckenmiller (Trades, Portfolio) is in second place, with a new position containing 3,650,000 shares. In third place, Jim Simons (Trades, Portfolio) purchased 1,019,300 shares while David Dreman (Trades, Portfolio) did the same with 25,188 shares.
The merger
The company completes the acquisition of RTI International (RTI, Financial), a global supplier of titanium and specialty metal products and services. Although Alcoa is an integrated producer company that focuses on several end markets, the deal will position Alcoa as a premier aerospace solutions provider. Also, the deal aims to develop its aerospace business in its engineered products segment. Further, it will generate great cost savings, around $100 million in annual cost savings by the end of 2019.
Mixed Results
Alcoa reported revenue of $5.9 billion in the second quarter, a 1.04% increase from the year-ago quarter, due to organic growth in automotive, aerospace and alumina. This number beat analysts' estimates of $5.81 billion. However, earnings per share of $0.19 were below estimates by $0.03.
Relative valuation
In terms of valuation, the stock sells at a trailing P/E of 19.24x, trading at a premium compared to the industry. To use another metric, its price-to-book ratio of 0.93x indicates a discount versus the industry median of 1.14x while the price-to-sales ratio of 0.47x is below the industry median of 1.14x.
10K five years ago
The stock price has a downward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $8.564, which represents a negative 3% compound annual growth rate (CAGR). In the past 12 months, the stock has plummeted about 40%.
Final comment
Although EPS have not met the expectations, the prospect of the company seems to improve in the future as the world economy recovers and particularly aerospace and automotive markets.
Steven Romick (Trades, Portfolio) upped his stake 59.14% to 30,514,900 shares, and Louis Moore Bacon (Trades, Portfolio) did the same by 33.33% to 200,000 shares. Further, Manning & Napier Advisors, Inc and First Pacific Advisors (Trades, Portfolio) increased their positions by 60% to 30,671,442 and 34,881,400 shares, respectively.
Because of the bullish sentiment of hedge funds, we recommend a long position in the stock due to an upside potential in it. The stock is trading lower every trading session, reaching new lows almost every day and it closed at its 52-week low.
Disclosure: Omar Venerio holds no position in any stocks mentioned
