Two Board Members Were Impressed With Alcoa’s Numbers

We would compare Alcoa to other miners whose profitability is tied to economic activity, including BHP Billiton Limited (NYSE:BHP), Rio Tinto plc (NYSE:RIO), Vale SA (NYSE:VALE), and United States Steel Corporation (NYSE:X). Vale appears to have the best claim to value status as far as multiples are concerned, with trailing and 2013 P/E multiples of 9, but financial performance has been poor recently including a large decline in net income. U.S. Steel has been struggling- and is still a popular short, with short interest equal to 21% of the outstanding shares- and even though the Street sees a decent year ahead we’d avoid the stock; even if we were taking analyst estimates at face value, Alcoa has a lower 2013 earnings multiple. BHP Billiton and Rio Tinto have also been reporting sizable declines in revenue and earnings from a year ago, and the earnings multiples aren’t particularly attractive at those companies. Rio Tinto does carry a current-year P/E of only 8, based on high expectations for earnings growth, but even in that case we would need to see better actual financials.

Alcoa wouldn’t be a bad value if it hit its earnings targets for this year, and if it continued to improve in 2014 it would turn out to be a good value at the current price. With multiple insiders buying, we would hold off for now but certainly think that it could make for a good watch list stock for the first half of the year.