Finally, Alcoa’s the Tell Investors Need

For a long time, Alcoa’s earnings, always the first of the season, were much like Groundhog Day. The US turned to the aluminum company, much like it did that chubby marmot, for a sign of what was to come. Healthy profits from the quarterly reports that followed? An early spring? Or could investors expect terrible losses and six more weeks of winter?

The problem was that Alcoa’s powers of prognostication were about as good as those of Punxsutawney Phil. Using the company’s numbers to trade the rest of earnings season proved as useful as packing up your goose-down jacket on Feb. 2, regardless of what the “Weather Prophet Extraordinary” had to say.

But that all changed on Oct. 7.

“Even a broken clock is right twice a day, and the thing-of-beauty quarter Alcoa reported last Thursday is, for once, truly significant,” Cramer said. “You want to know how the world economy’s doing? You should read Alcoa’s conference call. You want to know whether the people who are fretting about a strong dollar are right? I’ll give you a clue; they ain’t, as you would know from reading the Alcoa conference call. Not only did this company report a strong quarter, it also gave us a fantastic pulse on the health of the world’s economies and the host of end markets that use aluminum. These weren’t just good results, they were informative ones.”

Alcoa beat by a penny the Street’s incredibly low earnings estimates of 5 cents a share, and did so on revenues that were up 15 percent year-over-year—all of that in the face of a 5-percent drop in aluminum prices from the previous quarter. At the same time, the company upped its 2010 aluminum consumption growth forecast to 13 percent after already bumping it to 12 percent from 10 percent last quarter. Alcoa’s end markets all showed signs of great improvement, too, including building and construction, aerospace, autos and trucks and trailers. And demand could be seen rising, or at least holding steady, across the globe, with Brazil and Russia on the up and up while India, China the US and Europe held at their current levels.

The aluminum business is looking a lot better to boot. Alcoa cut its surplus aluminum forecast to 820 metric tons from 1.3 million, and now the company expects a 2010 deficit of 200 metric tons instead the 200 million metric ton surplus it predicted last quarter. Prices are climbing as well, with the spot rate jumping to $1.04 a pound from 90 cents a pound. Cramer thinks the fundamentals point to that increase holding, which is great for Alcoa and investors. Alcoa’s earnings per share add 4 or 5 cents every time the price of aluminum ticks up a penny, offering investors some much-desired earnings visibility.

With a new aerospace cycle upon us, thanks to Boeing’s 787 Dreamliner, Cramer thinks “we are still in the early innings” of the Alcoa story. And the stock’s cheap, trading at a bout a 15-percent discount to Alcoa’s average historical valuation. He even predicted the company will eventually pay a “huge dividend.” So investors probably want to get in now.

“I think Alcoa is a buy after this quarter,” Cramer said, adding later, “It’s going higher.”

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