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Sunday, 08/19/2001

AA - Alcoa

Company Description

Alcoa (NYSE:AA) is the world's leading producer of primary aluminum, fabricated aluminum, and alumina. Alcoa is active in all major aspects of the industry, including technology, mining, refining, smelting, fabricating, and recycling.

Alcoa's aluminum products and components are used worldwide in aircraft, automobiles, beverage cans, buildings, chemicals, sports and recreation, and a wide variety of industrial and consumer applications, including Alcoa's own consumer brands such as Alcoa wheels, Reynolds Wrap aluminum foil and Baco household wraps.

Related businesses include packaging machinery, precision castings, vinyl siding, plastic bottles and closures, fiber optic cables, and electrical distribution systems for cars and trucks.

(Source: Alcoa)

Reasons To Invest

It's been a difficult summer for long-term investors. The majority of sectors across the market are increasingly difficult to gauge, and earnings warnings after earnings warnings are piling up. Take for example the retail sector, which had been a strong performer up until the past few weeks. Even the seemingly safe haven of insurance stocks have been selling off recently. And forget about the tech sector, it's in a world of hurt.

Because of the difficult and perilous nature of the market currently, we thought we'd turn our focus to a more reliable name in a sector that's not prone to blow-ups. While not of the sexy variety, Alcoa is a reliable company with a consistent track record and, perhaps most importantly during these economic times of peril, a solid management team. Speaking of management, Aloca's CEO recently acquired some 26,000 shares through the exercise of options. As we've stated before, it just makes sense to invest with those running a company.

Alcoa's recent historical earnings growth rate was about 15 percent per year. Its future earnings growth rate is around 15 percent as well. While that's not the type of earnings growth that's going to lead to 50 percent annual returns in the stock price, it is consistent and relatively stable. Furthermore, Alcoa's earnings growth may actually up-tick once the economy rebounds, which most economists agree won't happen until early 2002. But since stock prices tend to discount future events six to nine months out, Alcoa's share price may begin a steady ascent this fall. That's why long-term investors looking for a safer place to park some capital might consider taking a closer look at this stock.

In terms of price, shares of Alcoa recently pulled back to their 200-day moving average, which is a price level that large institutions will typically buy the stock if their bullish on the company's prospects. Moreover, Alcoa's recent price weakness is not out of the ordinary. The stock traded to an all-time high above $45 just a few months back. So its recent weakness may have been no more than a natural retracement of its gains.

Currently, the stock is trading around favorable levels for long-term accumulation. In addition, with further cuts in interest rates by the Federal Reserve, not only will Alcoa's dividend become more attractive, but investors may be willing to pay more for the company's 15 percent earnings growth.

DRIP Information:

Shares to Qualify = 1           Accept Foreign Accounts: Yes
Auto-reinvestment = Yes         Temper Enrollment Serv:  Yes

Min/Max Investment = $25 to $5,000/month
Reinvestment Fees: 
Dividend: $0        Cash: $0      Auto ReInvest: $1

Transfer Agent:

First Chicago Trust


Industry Group: Materials, Metal  52-week high=$45.71
Annual Dividend Per Share= $0.60  52-week low =$23.13
Last earnings 07/15     est=0.45  actual=0.49
Next earnings 10-17     est=0.46  versus=0.42
                                  P/E = 22
Analyst Ratings:
Strong Buy    = 7
Moderate Buy  = 4
Hold          = 2
Moderate Sell = 1
Strong Sell   = 1


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