Alcoa (AA, Financial), one of the world's largest producers of aluminum, alumina and engineered lightweight metal products used in a variety of different end markets, has been trading down since February 2015, when the last rally was seen.
In 11 months, the stock plunged 45%.
Catalysts
Although the aluminum demand likely will recover from cyclical lows, helping the growth potential, the company has made some acquisitions that help it to reshape to less aluminum dependent and position itself in the aerospace industry.
Aluminum is the input and output of the company´s segment so higher prices benefit Alcoa as a whole, but low aluminum prices benefit its downstream sectors.
Moreover, the eventual split of the upstream and downstream businesses will provide additional value.
Finally, we can cite the efforts made to lower production costs and expand their margins. An obvious example is a joint venture with the Ma'aden mining company and the investment it has made in search of a low-cost natural gas supply.
Analyst ratings
From analysts covering the stock: Ten rate it a “Buy,” zero a “Sell” and seven a “Hold.” Considering the target price of $13.75, the upside potential is 60% from current levels so next week, when the company reports Q4 earnings, will be crucial to confirm this potential.
Hedge fund positions
Three hedge fund managers initiated new positions in the third quarter of 2015. Those gurus are Seth Klarman (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) with 52,270,000, 2,169,200 and 643,303 shares. The mean price in the trimester was $9.60 so considering the actual price of $8.60, the loss in their portfolios matches the number of shares they have.
Klarman is the largest shareholder with 52.3 million shares, valued at $505 million as of September 2015, representing 8.41% of its 13F portfolio.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
