Aluminum is one of the most abundant metals on Earth. It’s also incredibly useful, with applications across industries including aerospace, shipping, beverage packaging and construction, to name a few. Of course, the pandemic initially harmed aluminum stocks, sending prices to lows in May of 2020 as sales slowed. But they have since rebounded, recently hitting 10-year highs.
The problem now is that end-users in Europe and North America can’t get their hands on enough supply. Chinese imports of aluminum increased when the nation switched from being a net exporter to a net importer.
The move was initially one of opportunity. China sought to bolster its stockpiles of the metal on slumping commodity prices. But many believe China will continue to import for the foreseeable future. It could invest in smelting in other nearby Asian countries in an effort to limit carbon emissions. As a result, prices for the commodity could remain elevated.
As such, companies that utilize aluminum have seen costs rise. According to the Wall Street Journal, Monster Beverage (NASDAQ:MNST) CEO Hilton Schlosberg characterized the price shifts as unprecedented, noting: “I’ve been in this business for a long time…and I’ve never seen aluminum where it’s at right now.”
Producers, though, are seeing boon times with these high commodity prices. What’s more, continued logistical issues like congested port entry, shipping container shortages and stockpiled supplies will keep prices high.
That means that investing in aluminum stocks is a smart move today. So, let’s look at some of the industry’s producers.
- Alcoa (NYSE:AA)
- Kaiser Aluminum (NASDAQ:KALU)
- Vedanta (NYSE:VEDL)
- Aluminum Corporation of China (NYSE:ACH)
- Constellium (NYSE:CSTM)
- Century Aluminum (NASDAQ:CENX)
- Arconic (NYSE:ARNC)
Aluminum Stocks to Buy: Alcoa (AA)
Alcoa may well be the most recognizable name among aluminum stocks on this list. This Pittsburgh, Pennsylvania company was founded in the late 1800s and, if you’ve ever spent time at a building site, you’ve probably seen its products.
The good news for investors here is this: right now, high aluminum prices are filtering through to Alcoa’s bottom line and its share price.
When the company released its second-quarter earnings on Jul. 15, the news was good. In fact, it was a stark turnaround from Q2 a year earlier. Over that period, revenues increased by nearly 32%, reaching $2.83 billion. In Q2 2020, Alcoa had suffered a $197 million net loss when aluminum prices tanked. A year later, though, and the company posted $309 million in net income on rising prices.
AA stock and Alcoa split from its parent — Arconic, also on this list — back in 2016. This most recent quarter was the company’s strongest since the split. Alcoa is using the boon to reduce debt and is specifically paying down $500 million in 7.00% notes, which are due in 2026. The company had also already directed $750 million toward early redemption of 6.75% senior notes, as specified in its Q2 earnings release.
Kaiser Aluminum (KALU)
Next up on this list is Kaiser Aluminum, a company that manufactures and sells semi-fabricated specialty aluminum. Its products have applications in aerospace, engineering, automotive and other specialty industrial sectors.
For starters, I should provide a note of caution here: when it comes to aluminum stocks, aluminum producers themselves will be in the best position due to the price spikes. Kaiser Aluminum is an end-application firm which uses the metal in its products. Sure, it could see a bump in its business, but probably a more muted one than producers.
This company has seen a dramatic increase in shipments and sales over the second quarter as well as the first half of 2021. Sales hit $741 million in Q2 2021, up some 168% from $276 million a year prior. Similarly, over that same period, net income increased by 166%, rising from $6 million to $16 million in Q2 2021. Finally, for the first half of the year, sales increased by 65%. All told, Kaiser is in a much better position than it was a year ago.
There is some trepidation regarding KALU stock, but for investors who want to look beyond pure production, this one is worthwhile. Prices should continue to rise as supply-chain issues still favor the company for the foreseeable future.
Aluminum Stocks to Buy: Vedanta (VEDL)
Vedanta is an Indian company that engages in multiple areas of the commodities business. For example, the company operates across minerals, oil and gas and also processes both copper and iron ore in addition to aluminum.
Of course, the reason to consider this pick of aluminum stocks now relates to sky-high aluminum prices. The company recorded its highest-ever quarterly aluminum production in its most recent earnings report on Jul. 26.
For the period, sales increased 79% on a year-over-year (YOY) basis. Meanwhile, EBITDA gains outpaced increased sales, reaching 150% growth over the same period.
I see a few reasons for optimism regarding VEDL stock moving forward.
For one, it has been established that China will likely continue to be a net importer of aluminum in the near term — and perhaps longer. Given India’s proximity to China, there is potential for increased revenues. (Yes, I am aware that their political relationship is strained, but the opportunity remains.)
Further, Vedanta maintains operations that span multiple commodity classes. Those commodities’ respective supply chains may also be facing similar issues to aluminum. That could mean that, for example, something like zinc could pop.
So, VEDL stock isn’t just an interesting play on aluminum. It’s also a general way to play commodities.
Aluminum Corporation of China (ACH)
Let’s begin our discussion of the Aluminum Corporation of China with raw returns. After all, at the end of the day, that’s what we’re all interested in as investors. And when it comes to ACH stock, the news is good on that front; the stock has more than doubled in price since the beginning of 2021, rising from the $9 level to around $20 per share today.
If there is one entry on this list of aluminum stocks to pay the most attention to, it’s ACH. Why? The reason primarily relates to the idea that China-based companies are stockpiling and becoming sellers following their strategic moves in 2020. Moreover, this company’s focus on procurement makes it a central player in the aluminum narrative in China.
Aluminum Corporation of China is a raw materials and commodity producer. However, it wouldn’t be surprising to see it focus more on an import-export role, given that smelting may move to nearby Asian countries on emissions regulations. A few lines from one company filing summarizes ACH well:
“We are a leading enterprise in the non-ferrous metal industry in China. In terms of comprehensive scale, we ranked among the top enterprises in the global aluminum industry. We have benefited from the development of the PRC aluminum market, the world’s largest aluminum market. We refine bauxite into alumina, which is then smelted into primary aluminum.”
There is clear country risk here, given this name’s location. But I get the sense that ACH stock can run a lot higher — and that there is an information lag upon which to capitalize.
Aluminum Stocks to Buy: Constellium (CSTM)
Next up on this list of aluminum stocks is Constellium, a French specialty rolled aluminum manufacturer that serves the aerospace, packaging and automotive end markets.
Investors interested in momentum stocks will likely gravitate toward CSTM stock. That’s because it has increased by 47% in price year-to-date (YTD). That steady upward momentum has brought prices from below $14 to above $20. What’s more, this stock’s prices should continue to march upward, if analyst consensus bears out. According to Tipranks, four analysts with coverage give CSTM stock an average target price of $23.75. All four rate it a buy.
Constellium shipped 406,000 metric tons of aluminum in Q2 2021, up 31% from a year earlier. That increase led to 1.5 billion euros ($1.77 billion) in revenues, representing a 47% increase YOY. And according to CEO Jean-Marc Germain, that momentum isn’t slowing:
“I look to the second half of the year with confidence. Demand from our major end markets, with the exception of aerospace, is at or above pre-pandemic levels. We expect these favorable conditions to continue at least through the remainder of 2021. Based on our current outlook, we are raising our guidance […]”
Constellium now expects adjusted EBITDA of 545 million euros to 560 million euros ($644.1 million to $661.8 million). It also sees free cash flow of at least 125 million euros ($147.7 million) for the year.
Century Aluminum (CENX)
Century Aluminum should appeal to investors seeking inexpensive aluminum stocks that cans still capitalize on the current boom.
On the inexpensive front, there’s quite a bit of good news here: share prices are under $13 currently. That’s much cheaper than some of Century’s larger competitors. Beyond that, CENX stock also carries an average target price of $18, based on one analyst on Tipranks. That implies that there’s more than 40% upside.
Century Aluminum released its financial results back in early August. The numbers were strong. For example, the company realized per ton prices of $2,155 for aluminum during the period, up $215 from a quarter earlier. Premiums increased as well, owing to the inaccessibility of the metal. That demand spike meant the company commanded a $490 premium in the U.S. Midwest and a $175 premium in Europe on a per ton basis. Altogether, although shipments decreased by a modest 2.45% between Q1 and Q2, sales increased by roughly 19%.
This company is expanding its operations and CEO Jesse Gary is highly optimistic moving forward, noting strong growth: “This has been especially true in the U.S. and Europe, where we have seen inventories already return to pre-pandemic levels and demand for value-added products, including low-carbon products, near all-time highs.”
Aluminum Stocks to Buy: Arconic (ARNC)
Last up on this list of aluminum stocks is Arconic, another aluminum producer that’s capitalizing on current demand. The company has rebounded from the depths of last year’s low prices very nicely. In fact, Q2 sales hit $1.8 billion, up 52% from the second quarter of 2020.
In Q2 of 2020, Arconic realized a net loss of $96 million. That loss swelled to $427 million in Q2 2021. Of course, this sounds bad on the face of it. Why should the company’s losses continue to mount if aluminum prices are at a 10-year high? Well, the answer lies in pension obligations and funding. Arconic directed $423 million toward “the partial annuitization of U.S. pension obligations completed in quarter.”
Overall, Arconic reported Q2 adjusted EBITDA of $187 million. The company also updated its guidance for full-year revenue to between $7.3 billion and $7.6 billion, up from $7.1 billion to $7.4 billion. All in all, you could pick worse than ARNC stock.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.