Alcoa Is Making Nice With Ford And GM - Shareholders Of All 3 Will Benefit Long Term

| About: Alcoa, Inc. (AA)

If you read my articles, you know that I'm long term bullish on GM (NYSE:GM), Ford (NYSE:F) and Alcoa (NYSE:AA). Put simply, my thesis for Ford and GM revolves around both companies being able to continue to innovate, and to push that innovation in Europe and China, while continuing to post impressive sales in the U.S.

My thesis on Alcoa is that they're hunkering down and closing smelting facilities that have been a burden, expecting increased production regardless, and are expecting a bounce in global aluminum prices in the coming year. Alcoa, like Ford and GM, pays a dividend as well.

I am long Alcoa stock and Ford stock, and currently own GM warrants B and C - all of which I bought right around the beginning of the year after naming these three stocks "Attractive Trades" for 2014.

Alcoa has really been my only winner since picking all of these companies up towards the beginning of the year this year. After poor earnings, the stock wound up running amidst a JP Morgan upgrade, which cited a hopeful upswing in aluminum prices as a catalyst. It's up about 7.2% YTD while Ford remains stagnant and GM has been lagging nearly 15%. As I've disclosed on my StockTalks, I've been taking the dips as opportunities to add to my GM position.

One of the items that I thought was going to be a weapon for Ford moving into the new year was going to be its new F-150 aluminum based pickup trucks. At the Detroit Auto Show this past year, there were tons of headlines about Ford entering into an agreement with Alcoa to provide them with the massive amounts of aluminum that's going to be necessary for this.

I was buzzed on both fronts, as I own both stocks and am happy that Ford continues to try and innovate. Innovation is something that I felt the U.S. automakers lost somewhere before the crisis in 2007 - it's nice to see the companies putting it front and center and investing in it this time around, I think it will serve them well.

"You're either moving ahead and you're improving and you're making it more valuable and more useful to the customer or you're not."

-Ford CEO Alan Mulally

The aluminum allows the trucks to shed substantial weight which, in turn, provides better gas mileage. The trucks also have sleep new designs, a la the new Fusion, that I believe Ford enthusiasts will approve of. The design is - well, really sexy:

I'm not even a truck guy, and I'd drive that. Additionally, the question of whether or not your truck enthusiasts are going to want to stick with steel as opposed to aluminum may be less of an issue if more car companies start to follow Ford's lead.

Impressive to me from both U.S. auto makers has been both their commitment to global expansion, but also a refreshed commitment to keep designs fresh and entertain new ideas as they evolve.

We have to make sure every aspect of product meets the customer's needs. It has to be a customer focused value with excitement from design to performance to technology to durability, reliability and quality. At any interaction at any level of the organization, we need to keep people focused on great products.

-General Motors CEO Mary Barra

And it looks like that's exactly what General Motors is going to do. Seeking Alpha reported yesterday:

  • GM is accelerating efforts to field a largely aluminum-bodied next-generation pickup truck by late 2018, recently locking in supply contracts with Alcoa and Novelis which are now working to increase their aluminum sheet production to supply the GM pickup, WSJ reports.
  • The push to develop an aluminum intensive large pickup marks an apparent change of direction for GM; before Ford unveiled its 2015 F-150 with a body made almost entirely of aluminum, GM execs had questioned whether such a vehicle could be cost competitive or appealing to U.S. customers.
  • GM is said to believe it can offset Ford's head start by using more advanced welding techniques to produce a lighter, stronger and easier to assemble truck.

As an Alcoa stockholder, this is what you like to see - two of the biggest auto makers in the U.S. basically fighting to see who can buy aluminum the quickest.

Drive those prices up, boys!

But, oh wait - not so much that it hurts the auto makers.

Forgot about that.

These three positions make up some where around 24% of my portfolio when combined - news like this sometimes has me wondering if I'm going to reach some sort of auto-maker nirvana this coming year. I continue to believe Ford and General Motors are undervalued, and this could contribute to an upswing for Alcoa this year, as well.

Sure, there's a risk that the aluminum won't catch on, but as I've already said, the more companies that do it, the more likely it is the catch on with consumers.

A someone who has a long-term outlook on his investments in Ford, GM, and Alcoa (looking for 2017-2019, barring catastrophe), I like this news of three of my bigger positions all working together to bring innovation to the auto market.

Best of luck to all F, GM, and AA shareholders.

Disclosure: I am long F, AA, GM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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