Alcoa: Buy The World's Biggest Aluminum Producer At A Bargain Price

| About: Alcoa, Inc. (AA)

Alcoa Inc. (NYSE:AA) is the world's biggest explorer and producer of aluminum and its derivatives.

The company benefited from the boom in house construction but since the sub prime crisis it has never really recovered in terms of market cap, but in terms of revenue it is at the same level as 2005. The net income is another story; 2011 fiscal year it reported a net income of $611 Million or 50% below the $1233 Million verified in 2005, while the stock price is 62% below the 2005 minimum.

(Click charts to enlarge)

From the income statement, overall sales increased since 2009 and the company forecast that global aluminum demand would grow 7% in 2012. Its operating margin is 7.14% and has been penalized by a downward trend in aluminum prices that are currently near the 52-weeks low.

Analyzing Alcoa's balance sheet we verified a debt ratio of 57% and a book value per share of $13.21 giving investors some stability in terms of financial soundness. Moreover its residual value is $7473 Million (or $7.01 per share), which means that in case of bankruptcy, the shareholder would have a loss of 19% relating to its current market cap ($9174 Million).

With a PER (price-to-earnings ratio) of 15.85 but with a growing potential in terms of both activity and aluminum price rebound Alcoa seems to be attractive for a short-term trade with the 200-day moving average as a target.

AA US EQUITY

Price

Distance

Total Debt

22.925

Target

10,00

16,28%

Total Assets

40.120

Long Entry Price

8,60

Debt Ratio

57%

Stop Loss

7,80

-9,30%

Residual Value

7.473

Actual

Target

QT

Mkt Cap

Pr

Variation

QT

Mkt Cap

Pr

Variation

MKT CAP

1.067

9.174

8,60

MKT CAP

1.067

10.667

10,00

Residual VALUE

1.067

7.473

7,01

-19%

Residual VALUE

1.067

7.473

7,01

-30%

Better

Worst

Better

Worst

Net Income

2.564

- 1.151

Net Income

2.564

- 1.151

Mkt Cap

9.174

9.174

Mkt Cap

10.667

10.667

PER

3,58

- 7,97

PER

4,16

- 9,27


Disclosure: I am long AA.