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Alcoa jumps at chances to build revenue streams

SUNDAY, JAN. 19, 2014

Stock in U.S. aluminum giant Alcoa (NYSE: AA) gained 24 percent in 2013, and the stock has more room to run. (That 24 percent actually underperformed the S&P 500, which gained about 32 percent in 2013.)

Aluminum producers have suffered lately from low aluminum prices, but there are reasons to be optimistic about Alcoa’s future. Our global economic slowdown did depress demand, but it also created a production deficit that should widen over the coming years. The rebounding auto industry also bodes well for Alcoa.

Meanwhile, Alcoa is grabbing opportunities such as producing lightweight alloys for airplanes, and it recently snagged a $110 million contract from Airbus. It’s also looking at the housing industry, where new window products can boost energy efficiency.

Alcoa’s value-add businesses now account for 57 percent of total revenues and 79 percent of after-tax operating profits. It’s looking to add more than $2 billion in new revenues to its business.

With a forward-looking price-to-earnings (P/E) ratio well below its five-year average and a 1.2 percent dividend yield, Alcoa seems likely to reward long-term shareholders.

Ask the Fool

Q: Do I have to buy 100 shares at a time of any stock? – B.F., Watertown, Wis.

A: Most brokerages don’t restrict how many shares of stock you can buy. You can buy 13, or 72, or even just one share. Pay attention to what percentage of your investment is going to commissions, though.

If you’re buying 10 shares of a $40 stock for $400, but are paying a $25 commission to your broker, then that represents more than 6 percent of your investment, which is too costly. Aim to pay 2 percent or less in commissions.

My dumbest investment

My dumbest investment was buying TTM Technologies without a stop-loss order on it. I ended up down 59 percent. – B.B., online

The Fool responds: TTM Technologies is a top maker of printed circuit boards, and it has seen its stock surge and plunge over the past year.

It can make sense to place stop-loss orders on stocks, which will trigger an automatic sale if the stock falls by a set percentage. While a stop-loss order can prevent a big loss, it can also prevent a big gain.

With a forward price-to-earnings (P/E) ratio near 8, well below its five-year average of 33, the stock seems appealingly valued.


 

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