Alcoa Inc (AA): Searching for Great Stocks in Basic Materials

Do you have nerves of steel?

ArcelorMittal is an intriguing stock for investors interested in international diversification. The integrated steel-and-mining company, based in Luxembourg, carries a $20 billion market capitalization and has a presence in 60 countries worldwide.

Unfortunately, 2012 proved to be an extremely difficult year for ArcelorMittal and its investors. The company reported a $3.7 billion net loss, driven primarily by a 2.3% drop in steel shipments.

That being said, management is more optimistic about this year than last. The company expects reported earnings before interest, taxes, depreciation, and amortization (EBITDA) to be higher in 2013 as compared with 2012. In addition, steel shipments are expected to increase by 2%-to-3%, and margins are expected to improve, as well.

Let shareholder returns be your guide

Air Products provides reliable annual dividend increases in the high-single digit to low-double digit percentages. Over the past five years, the company has increased its shareholder payout by 10% compounded annually. It seems that year in and year out, no matter how challenging the prevailing economic climate, Air Products comes through with a 10% dividend increase.

Alcoa has taken measurable steps to reduce costs and right its ship after facing the worst economy in 2008 and 2009 since the Great Depression, but more work needs to be done. Buying Alcoa in the current environment may be more of a speculative bet than many investors would likely prefer. The company’s operating performance fluctuates wildly from year to year as a result of volatile aluminum prices.

Alcoa slashed its dividend in 2009 during the depths of the financial crisis. Unfortunately for investors, the company hasn’t  increased its dividend since then. Consequently, the current dividend amounts to a paltry 1.4% yield, hardly providing suitable downside protection.

ArcelorMittal still has a ways to go to recapture more solid financial footing, as well. To buy and hold this stock, investors must have the stomach for ups and downs that are inevitable with a global steel company. ArcelorMittal is currently trading 60% below book value, so investors who believe in the long-term direction of the company might not have a better opportunity than the one that exists today.

Had ArcelorMittal not altered its dividend policy, the stock would be a compelling opportunity. It paid 2012 dividends worth $0.75 per share. Unfortunately for investors, the ArcelorMittal’s board of directors has recommended the dividend be reduced to $0.20 per share for all of 2013. While still subject to shareholder approval, a dividend reduction would offer investors a yield of only about 1.5% at recent prices.

As a result, Air Products seems to be the most promising of the materials stocks presented here. Air Products trades for only 15 times trailing earnings and offers a long track record of reliable dividend increases.

The article Searching for Great Stocks in Basic Materials originally appeared on Fool.com and written by Robert Ciura.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!