Sunday, January 10, 2010

BAGAKOAA January 9, 2010 Curses Foiled Again AA


January 9 2010 Curses Foiled Again AA

Alcoa reports on Monday. The estimated earnings are .06 a share. The Whisper Number, in other words the one to beat, is .07 a share. It is hard to guess what they will report, but aluminum prices are still low. The cost of making aluminum (mostly water and electricity lots of electricity), is rising. So there is no reason to believe that AA will blow way the .07 number. On the other hand and looking more forward, AA serves the aerospace industry, automotive industry, transposition industry, building and construction, all of which poised to move ahead. As a side note, some of the major aluminum smelters all over the world are shutting down traditional plants in Europe because of the energy costs and carbon emission issues and moving their operations to the middle east. The idling of those plants could be good for AA and Rio Tinto. There is quite a bit of aluminum inventory all over so it could take several months to absorb the glut, but when it happens, AA will be best positioned to score. I would wait but be ready to buy on a probable down (Never time a market or a stock-shame on me!) The 5 year trading range for AA’’s PE is 16-27. Split the difference. 21.50 is a rich PE. Let’s say they report .10 a share. This is how I would look at it. They blew away analysts estimates by 42% (10/7) Most estimates for 2010 earnings for AA are in the 65 to 85 cent range. So if you take 75 cents as a midpoint and the stock is selling for 17.02 it gives you a forward guessing PE of 22.6. The 5 year midpoint is 21.5 so you would be in the ball park, IF YOU BUY NOW. If AA announces a 10 earning the stock is bound to go up and so will the PE. You have another option and that would be an option. You could buy an in the money 14 or 15 dollar option for 2-3 dollars. If they hit the 10 cents, you are off to the races. If not you have time to see how the economy treats aluminum prices and AA stock. Hence forth, “Curses Foiled Again”

Salve Lucrum


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