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Value In Alcoa?

|Includes: Alcoa, Inc. (AA), RIO

In desperately trying to find value in this more than 2X overpriced market based on solid historical PE ratios for an economy that is in a depression, no matter how well it is covered up with government discounting the real rate of inflation that is not being subtracted out from the nominal GDP growth rate, along with them not properly accounting for the percentage of the GDP due to the federal deficit which if they did it would clearly show our GDP growth is about NEGATIVE 10%, I am constantly looking at some low PE ratio corporations. Sad, the few there are around, and I mean low as being under the long-term average PE ratio of 13 after discounting the many outlier bubble valuation years in recent times that are not consistent with the 100-year data. What is more troubling is the few companies with APPARENT good value are terrible values when looking deeper into their financials.

Look at Alcoa with its debt per cash of an incredible ratio of 6! Compare with RIO having such ratio at only 1.5.

And then you consider how high strength alloys are being greater utilized (stainless steel, tungsten steels, molybdenum steels, titanium alloys, and more), and greater realization of the hazardous effects of aluminum that finally is changing our choice of metals (I've for years been pushing for ousting aluminum from all cookware including avoiding the use of aluminum foil as well as eliminating aluminum compounds from deodorants), aluminum is being replaced by safer metals. For example, you will now find rice cookers to have stainless steel inner pots. While this may not mean much to Americans, it is significant elsewhere and is just the beginning of laying aluminum to rest. Moreover, better fabrication methods is allowing less aluminum to be used for packaging materials (notice how thin aluminum food wrapping is now when layered with plastic). These are all troubling issues for aluminum, making investment in corporations involved with the metal quite dangerous. In addition, aluminum is a highly costly metal to produce as much energy is used in the process being an electrolytic process is needed (go research the Hall process).

Now, looking at Alcoa closer, seeing that its troubles are far from over, in reducing its output, closing refineries, aluminum metal slumping which is hurting their revenues I see Alcoa as a possible candidate of going under (oh dare I say this?). Being Alcoa is big, who knows if our government will attempt to bail it out, but what happens to present shareholders? Think twice before trying to chase on PE value alone!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.