In addition to being essential to the construction industry, aluminum’s capacity to conduct heat and electricity makes it a popular choice for the electrical and electronics industries. While the demand for aluminum is rising with the reopening of industrial sectors worldwide, China, the world's biggest manufacturer of base metals, reduced its production to comply with its climate policies. As a result, aluminum prices rose to 13-year highs in September.
Earlier this month, aluminum prices reached $3,064 per ton on the London Metal Exchange, registering its highest price since July 2008. Furthermore, the aluminum market is expected to increase at a 5% CAGR between 2021-2026.
Given this backdrop, we think it could be profitable to scoop up fundamentally strong aluminum stocks Aluminum Corporation of China Limited (ACH), Alcoa Corporation (AA), and Constellium SE (CSTM), which have suffered price dips lately.
Aluminum Corporation of China Limited (ACH)
ACH and its subsidiaries manufacture primary alumina products in China. It operates through the broad segments of Alumina; Primary Aluminum; Trading, and Energy. The company is based in Beijing.
For its third fiscal quarter, ended December 31, 2020, ACH’s gross profit increased 10.5% year-over-year to $2.06 billion. Its profit for the year came in at $241.08 million, up 5.5% from the prior year. Its total comprehensive income for the year rose 12.7% year-over-year to $259.41 million.
A $35.74 billion consensus revenue estimate for the current year (fiscal 2021) indicates a 23.4% year-over-year increase.
The stock has gained 195.3% in price over the past year but declined 6.9% over the past five days to close yesterday’s trading session at $16.80.
ACH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ACH has a Growth, Value, and Sentiment grade of A, and a Momentum grade of B. In the six-stock, B-rated Aluminum industry, it is ranked #1. In addition to the POWR Rating grades we’ve stated above, one can see ACH ratings for Stability and Quality here.
Alcoa Corporation (AA)
AA is the seller of bauxite, alumina, and aluminum in the United States and overseas. The Pittsburgh, Pa.-based company is engaged in bauxite mining, alumina refining, and an advanced aluminum smelting solutions network.
On October 14, AA announced a $500 million share repurchase program and a $0.10 per share quarterly dividend payable on November 19. These developments are in line with the company’s capital allocation framework and reflect its confidence in its cash generation ability.
On September 30, the company announced a binding partnership between AA subsidiary Alcoa of Australia Limited and Australian resource company FYI Resources Ltd. The high-purity alumina development partnership gives AA 65% ownership over the project. Tim Reyes, Alcoa Executive Vice President and Chief Commercial Officer, said, "This project is a natural complement to Alcoa’s existing business that builds on our expertise in alumina refining technology development and our production capability."
AA’s revenue increased 31.5% year-over-year to $3.11 billion in its fiscal third quarter, ended September 30. Its adjusted net income and adjusted EPS stood at $391 million and $2.05, respectively, registering a substantial increase over their negative year-ago values. Its adjusted EBITDA excluding special items improved 156.3% from the prior-year quarter to $728 million.
Analysts expect EPS to increase 765.4% year-over-year to $2.25 in the current quarter (ending December 2021). Similarly, the Street expects its revenue to improve 43.4% from the prior-year quarter to $3.43 billion in the current quarter. In addition, AA has beaten consensus EPS estimates in each of the trailing four quarters.
AA’s stock has gained 281.2% in price over the past year to close yesterday’s trading session at $49.55. However, it has declined 3.1% intra-day.
It’s no surprise that AA has an overall B rating which translates to Buy in our POWR Rating system.
AA has an A grade for Momentum, and a B grade for Growth and Quality. It is ranked #3 in the Aluminum industry. To see additional POWR Ratings for Value, Stability, and Sentiment for AA, click here.
Constellium SE (CSTM)
CSTM produces and sells high-valued aluminum products and solutions for a range of applications. The company operates through three segments: Packaging & Automotive Rolled Products; Aerospace & Transportation; and Automotive Structures & Industry. It is headquartered in Paris, France.
On September 23, the company declared that it would supply aluminum structural components for the Ford Motor Company (F) F-150 Lightning model, which is in addition to the more than 50 million components that CSTM supplies to Ford. Earlier, CSTM announced its partnership with Audi, a luxury brand of Volkswagen AG (VWAGY), to provide advanced aluminum solutions for the Audi e-tron GT. This demonstrates the company’s dominance in the industry. Also, given the use of aluminum in electric vehicles and the growing EV market, these partnerships are expected to improve CSTM’s position in the EV components market.
For its third fiscal quarter, ended September 30, CSTM’s revenue increased 35.4% year-over-year to €1.59 billion ($1.84 billion). Its net income and EPS attributable to equity holders came in at €99 million ($114.86 million) and €0.65, respectively, up 395% and 400% from the prior-year quarter.
A $1.66 consensus EPS estimate for the current year (fiscal 2021) indicates a 1,022.2% year-over-year improvement. Likewise, the $6.61 billion consensus revenue estimate for the current year reflects an 12.3% increase from the same period last year. Also, CSTM has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 78.7% in price over the past year but declined 3.7% over the past five days to close yesterday’s trading session at $17.49.
CSTM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
CSTM has a Momentum grade of A, and a Value grade of B. It is ranked #2 in the Aluminum industry. Click here to see the additional POWR Ratings for CSTM (Growth, Stability, Sentiment, and Quality).
Click here to check out our Industrial Sector Report for 2021
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ACH shares were trading at $15.78 per share on Wednesday afternoon, down $1.02 (-6.07%). Year-to-date, ACH has gained 81.80%, versus a 22.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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