AA: Alcoa Is Firing Up Its Margins

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Alcoa Inc (AA), the world’s largest aluminum smelter and manufacturer just announced it has purchased Tital, a privately held German aerospace parts maker.

Alcoa stock upstream AANo price was disclosed for the purchase, but it is known that Tital had revenue of $96 million last year.

Considering Alcoa has a market cap of $17 billion, this purchase isn’t significant because of its size but more for the sector AA chose to invest in at this point. Tital uses aluminum for its high-performance, precision parts, which is a much higher margin business and somewhat distanced from the pure play commodity metals business that represents a majority of Alcoa’s business model.

Beyond Aluminum Cans

This suggests that Alcoa is looking to hedge some of its revenue outside the commodities sector as global growth slows. And given its completion of a $2.8 billion purchase of British jet engine manufacturer Firth Rixon, it looks like Alcoa is looking for strategic purchases focused on higher margin businesses that rely on lightweight metals in their processes.

Alcoa remains an A-rated Porfolio Grader “buy” and is a bedrock pick for any portfolio. What’s more, there’s a good chance that AA stock is oversold here and has some upside potential even in these depressed commodities markets.

Bear in mind, increased demand from automakers — Ford’s (F) new flagship F-150 pick-up truck now sports an all-aluminum body — hasn’t been priced in yet and the projected increase in demand for passenger aircraft will be two major bullish trends the world’s leading aluminum stock. And that doesn’t include all the parts and equipment it sells to other engine and parts manufacturers.

This recent pair of strategic purchases, smart far-sighted corporate leadership and the fact that as economic recovery takes hold Alcoa will be the bellwether of global growth show that Alcoa isn’t resting on its laurels. And while it’s sub-1% dividend yield isn’t a big selling point, it certainly is a nice addition to rock solid stock.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/alcoa-firing-margins/.

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