In October of last year, an automotive article caught my attention. Ford Motor Company announced that they would be releasing their flagship vehicle, the F150, with an aluminum body in 2015. Intrigued, I set out to do some research on the concept. I discovered that an aluminum body would increase fuel economy significantly, but it was not without its' faults. Aluminum is not often used in the U.S. for automotive bodies and poses a challenge for body shops. It requires shops to obtain new equipment and would likely be expensive for a consumer to have repaired. The potential for downside volatility was disheartening, so, I decided to do some cross-market research.
I knew that Ford would need an aluminum supplier to produce their new truck. With this in mind, I turned my attention to the Dow Jones U.S. Aluminum Index, knowing that Ford would never seek an international supplier for their Aluminum. As I had previously discovered, aluminum bodied cars were not popular in the U.S. and very few of the companies on the index had any experience supplying automakers with aluminum, with the exception of one. Alcoa aluminum (NYSE: AA) developed a relationship with Audi in the early 1990's when Audi contracted them to do the exact same thing that Ford was now seeking to achieve. I had found my supplier.
With very little volatility in their history, Alcoa gave me the ability to safely speculate on the role that they would potentially play in the production of the new F150. In early 2014 Ford announced that Alcoa would be the producer of the aluminum for their new truck. Shortly after, other large automakers including General Motors announced contracts with Alcoa as well. From my speculation and purchase in late October 2013, to my sale in early September 2014, Alcoa increased by over $8.50 per share, approximately 100% growth.
This is just one example of the huge effect that large consumer goods companies can have on commodity and industrial markets. Looking at individual companies with a larger macro view in mind can often result in less risky opportunities for equity traders or investors.