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Alcoa Inc (AA): Caution Is Needed When Considering These Aluminum Stocks

All things happen for a reason

Several years ago, Kaiser Aluminum Corp. (NASDAQ:KALU) was dogged by several lawsuits, including some from people charging that its aluminum products contained asbestos, which has been linked to mesothelioma. It was also defending itself in a labor dispute, the mounting legal costs of which contributed to its filing for bankruptcy protection in 2002.

This turned out to be the best move, allowing the company to implement significant changes as part of its restructuring. The restructuring entailed the company’s shedding its non-strategic bauxite and alumina operations as well as most of its primary aluminum holdings. Since emerging from bankruptcy proceedings, the company is more focused on developing the high-quality, fabricated aluminum products for major suppliers and manufacturers in the aerospace, general engineering, automotive, and custom industrial markets.

Considering Kaiser Aluminum Corp. (NASDAQ:KALU) focuses on producing fabricated products, it is an ideal pure play. This has allowed it to be somewhat shielded by the decline in aluminum prices. Kaiser Aluminum says it expects the weak demand from the fourth quarter to continue into the first quarter, citing slowing manufacturing demand in North America.

During its first quarter of 2013, the company beat analysts’ estimates. Its net income was $34 million or $1.73 per share. That is higher than the roughly $27 million, or $1.38 per share it reported during the same quarter of 2012. Year-to-date, Kaiser Aluminum Corp. (NASDAQ:KALU)’s stock is up 2.84%.

So, if you are on the hunt for a metal stock, you may want to steer clear of Alcoa Inc (NYSE:AA). It is disconcerting that it has painted a rosy picture for the aluminum industry, especially considering that observers say there will be no meaningful improvement over the next few quarters.

Century Aluminum Co (NASDAQ:CENX) and Kaiser Aluminum Corp. (NASDAQ:KALU) are better plays, mainly due to the restructuring initiatives they have invested in, which help them be well-positioned to handle the increase in demand for aluminum. This is going to be key, as uncertainty remains about when prices for the metal will increase and, if they do, whether they will increase enough to affect these companies’ top and bottom lines in a substantial manner.

Tedra DeSue has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Caution Is Needed When Considering These Aluminum Stocks originally appeared on Fool.com.

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