Two Board Members Were Impressed With Alcoa’s Numbers

Alcoa Inc. (NYSE:AA), the $9.5 billion market cap producer of aluminum (read our analysis of Alcoa from December), reported its earnings for the fourth quarter of 2012 earlier this month and the market’s reaction was neutral. The stock price showed little change after the company announced that lower costs had helped it turn a profit, something it had not achieved a year earlier or in the third quarter of 2012. Revenue had declined 2% from the fourth quarter of 2011 but crawled up 1% on a q/q basis.

Two of Alcoa Inc.’s Board members, Martin Sorrell and Ratan Tata, thought that Alcoa’s report was good news. Each of them bought close to 2,100 shares (a slightly higher number for Sorrell than for Tata) of the stock at prices of about $8.92 per share on January 11^th. Sorrell now owns about 8,100 shares while Tata’s direct holdings amount to close to 34,000 shares of stock. Insider purchases, statistically, are bullish signals (read more about studies on insider trading) and consensus insider purchases- events when more than one insider is buying- are particularly good signals, though of course there are cases when stocks bought by insiders underperform the market. Learn more about consensus insider purchases. These particular insiders were also buying last fall, one in October and one in November, at prices less than $8.90 per share (research insider purchases at Alcoa).

Wall Street analysts expect Alcoa Inc. to earn 64 cents per share in 2013, as opposed to the 24 cents per share in adjusted earnings the company had in 2012. The 64 cents figure results in a current-year P/E of 14, which would be about right for a company with very low earnings growth. However, the sell-side believes that Alcoa’s EPS will continue to significantly increase in 2014- the forward P/E is only 10- and so we’d characterize the analyst consensus as bullish. Of course, that doesn’t mean too much, and as with many other basic materials companies Alcoa has high market exposure (the stock’s beta is 2). Hedge funds are somewhat cool on Alcoa: the only two positions worth over $20 million in our database of 13F filings belonged to Ron Gutfleish’s Elm Ridge Capital and billionaire Israel Englander’s Millennium Management (see Millennium’s favorite stocks); each of these funds had sold shares in the previous quarter.

What about other mining companies?