Over the next few weeks, I hope to do an individual valuation of each of the components of the Dow Jones Industrial Average.Â For a brief overview of the Dow, please see our Glance at the Dow – a snapshot of the valuations on March 10.Â When I have completed the individual valuations, I will put together another overview.
Company Profile:Â Alcoa Incorporated (AA) (obtained via Google Finance)
Alcoa Inc. (Alcoa) is a producer of primary aluminum, fabricated aluminum and alumina, and is active in all aspects of the industry, including technology, mining, refining, smelting, fabricating and recycling. Alcoa is a global company operating in 44 countries. In addition, the Company has investments and activities in
1) Is the business simple and understandable?
Alcoaâ€™s business would be a great example of simple and understandable.Â Alcoa produces aluminum and could be used in a case study in business schools looking to learn about a vertically integrated business.Â Alcoa strives to be involved in every portion of the process of the production of aluminum, from the mining to the sales, to the recycling.Â
The company traces its roots to Charles Martin Hall, who discovered the process of smelting aluminum in 1886.Â Since then, the company has been involved in aluminum and anything related to it.Â Iâ€™d say thatâ€™s a consistent operating history.Â Financially, the company has achieved a positive net income for over 10 years, and has been paying a dividend for over 10 years.
Alain Belda has been the Chief Executive Officer of Alcoa since 1999 and has been with the company since 1969.Â Having seen Alcoaâ€™s results and agreeing with the companyâ€™s strategies moving forward, we see no reason to think Mr. Belda and the rest of the management is irrational.
The company has a standard investor relations page, with earnings reports, webcasts, etc.Â A look at the latest annual report indicates a clear and detailed explanation of the companyâ€™s goals and strategy for the coming year.
The market cap of Alcoa is $30.84 billion.Â Pass.
The companyâ€™s current ratio is about 1.14, below the 2.0 requirement.Â Fail.
The company has had a consistently positive net income for over 10 years.Â Pass.
Alcoa has consistently paid a dividend for over 10 years.Â Pass.
Earnings have grown more than 1/3 over the last 10 years.Â Pass.
With a PE ratio (using our Methods) of 16.33, the requirement of under 20 is met. Â Â Pass.
The Price to Book ratio for Alcoa is 1.91, lower than our 2.5 limit.Â The multiple of PE to PB is lower than our requirement of 50.Â Pass.
Having passed 6 of the required 7 tests for the defensive investor following Benjamin Grahamâ€™s value investing strategy, we believe Alcoa may be suitable for the defensive investor.
The companyâ€™s current ratio is below 1.5 and debt to net current assets is greater than 1.1.Â Fail.
The company has achieved a positive net income for over 5 years.Â Pass.
The company currently pays a dividend.Â Pass.
Earnings are greater today than they were 5 years ago.Â Pass.
The price is not less than 150% of the net tangible assets.Â Fail.
While the company did not pass the requirements of the enterprising investor, since it passed the defensive investments, we find the company may be suitable for the enterprising investor also.