Comments on: Valuation: Alcoa Incorporated (AA) http://www.moderngraham.com/?p=275 Devoted to the study and modernization of the theories of Benjamin Graham and Warren Buffett. Fri, 08 Jan 2010 16:38:12 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Ben http://www.moderngraham.com/?p=275&cpage=1#comment-1634 Ben Wed, 07 May 2008 20:23:32 +0000 http://www.moderngraham.com/?p=275#comment-1634 Well put as always, Aaron. Your comments are always spot on. Well put as always, Aaron. Your comments are always spot on.

]]> By: AaronH http://www.moderngraham.com/?p=275&cpage=1#comment-1633 AaronH Wed, 07 May 2008 20:19:23 +0000 http://www.moderngraham.com/?p=275#comment-1633 I could not agree more with the analysis and commentary. This is a NO BRAINER! I was in after the price drop a couple of months ago! You just can’t pass this up. They are earning heaps of money in a down market! Most people are focused on oil and gas and other commodities, not aluminum. Although it’s not rational to do a direct comparison, you can compare human reactions to down markets. Most people forgot when the oil companies were hemorrhaging cash and laying people off in 2000. If you go back farther in time, almost everyone forgot the mile long lines around the employment offices in 1987 in downtown Houston. Just like the above example with the oil companies, if this company can do this well in a down market, it’s going to do amazing in an up market. Take Oxy for example. Although not nearly as vertically integrated as AA, if you had bought when it was 10 dollars a share, what would it be worth now after the market split? 173.99 in five years time! Aluminum is always in high demand. It’s not a matter of if, it’s a matter of when. Also – if you want to add a little Buffet in with the Graham analysis, you need to look at castles and moats as he likes to explain it. Aluminum transportation costs are high while the costs of the commodity are low. When the market returns, the preferred seller in the whole of North and South America will be this company. This is especially true after further transportation is linked South of the border no matter what is going on in Russia, India or China. Whilst judging the ability of this company to handle political risk in international markets, it’s a good idea to point out that this company has survived over 100 years through two world wars. Thus you buy this company with a forever holding period in mind. I could not agree more with the analysis and commentary. This is a NO BRAINER!
I was in after the price drop a couple of months ago! You just can’t pass this up. They are earning heaps of money in a down market!
Most people are focused on oil and gas and other commodities, not aluminum. Although it’s not rational to do a direct comparison, you can compare human reactions to down markets. Most people forgot when the oil companies were hemorrhaging cash and laying people off in 2000. If you go back farther in time, almost everyone forgot the mile long lines around the employment offices in 1987 in downtown Houston.
Just like the above example with the oil companies, if this company can do this well in a down market, it’s going to do amazing in an up market. Take Oxy for example. Although not nearly as vertically integrated as AA, if you had bought when it was 10 dollars a share, what would it be worth now after the market split? 173.99 in five years time!
Aluminum is always in high demand. It’s not a matter of if, it’s a matter of when. Also – if you want to add a little Buffet in with the Graham analysis, you need to look at castles and moats as he likes to explain it. Aluminum transportation costs are high while the costs of the commodity are low. When the market returns, the preferred seller in the whole of North and South America will be this company. This is especially true after further transportation is linked South of the border no matter what is going on in Russia, India or China. Whilst judging the ability of this company to handle political risk in international markets, it’s a good idea to point out that this company has survived over 100 years through two world wars.

Thus you buy this company with a forever holding period in mind.

]]> By: Ben http://www.moderngraham.com/?p=275&cpage=1#comment-1629 Ben Wed, 07 May 2008 18:23:00 +0000 http://www.moderngraham.com/?p=275#comment-1629 Gumby brings up a good point. If the price of Aluminium goes up, it is likely to affect the level of revenue that Alcoa receives. Thus, the net income would be affected and the intrinsic value would be greater. This just makes it even more attractive from a value investor's standpoint. Gumby brings up a good point. If the price of Aluminium goes up, it is likely to affect the level of revenue that Alcoa receives. Thus, the net income would be affected and the intrinsic value would be greater.

This just makes it even more attractive from a value investor’s standpoint.

]]> By: Gumby http://www.moderngraham.com/?p=275&cpage=1#comment-1627 Gumby Tue, 06 May 2008 20:38:20 +0000 http://www.moderngraham.com/?p=275#comment-1627 Your analysis of Alcoa is based on laggard price of aluminium as related to today metal prices. The supply and demand balance has yet to be played out as aluminium has been stuck at very low prices for a couple of decades since the lowering of the Iron Curtain. Russia flooded the market with aluminium during the nineties, then every continent start building new aluminium smelters regardelssly about profitability. We are still swimming in surplus and we will have to grab the towel before too long. Aluminium is destined to hit $3 a pound. Translation: ALCOA $200 a share or higher...depending on the cost of electricity in the future. Your analysis of Alcoa is based on laggard price of aluminium as related to today metal prices. The supply and demand balance has yet to be played out as aluminium has been stuck at very low prices for a couple of decades since the lowering of the Iron Curtain. Russia flooded the market with aluminium during the nineties, then every continent start building new aluminium smelters regardelssly about profitability. We are still swimming in surplus and we will have to grab the towel before too long. Aluminium is destined to hit $3 a pound. Translation: ALCOA $200 a share or higher…depending on the cost of electricity in the future.

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