Alcoa saves the day

Right now, the aluminum giant could take on the world's woes and win.

By Jim Cramer Apr 11, 2012 8:59AM

Alcoa (AA) against the world! Alcoa against 6% Spanish bond yields! Alcoa against the doubling of short-term Italian bill rates! Alcoa against Chinese inflation!

 

Can one company take on all of these forces of evil? One endlessly disappointing metals fabricator?

                

Well, kind of, yes.

 

Because we live in an odd serial world, one in which the last voice frequently wins.

 

And that last voice, that of Klaus Kleinfeld -- he, the honest, self-deprecating, worldly and, at times, just plain hilarious CEO of Alcoa -- is pretty darned persuasive.

 

Of course, on Wednesday he was helped by word from the ECB that all of those Spanish bonds bought patriotically by large Spanish banks won't fall by the wayside. Nor will the banks. It does take some guts of the German puppet masters to tell the Spanish to clean up their house without any incentives for growth and then tell their banks to take a hike. Good to see some justice over there on some issue other than the carbon tax. (It always helps when Deutsche Bank upgrades No. 2 Spanish bank Banco Bilbao, as it did Wednesday morning.)

 

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But Klaus did a ton on his own. He made it clear that engineered products across the board -- Alcoa's bread and butter -- are doing quite well with good margins. That's clear from the fact that the company made money on the downstream even as raw costs remain high because of energy and labor, both of which are coming down. I knew someone would seize on the recent weakness in oil, and Klaus sure did.

  1. Aerospace is going to exceed growth plans with eight years of plane orders from Boeing (BA) and Airbus on the horizon. That's 8,400 aircraft on backlog with the likes of the A320 and B737 being all aluminum. We are now talking about a 13% to 14% increase in that aluminum business, which includes the dominant fastener biz (screws). Plus the business jet business, hurt so badly by President Barack Obama's critical, some would say reckless, comments, seems to be coming back.
  2. Auto growth is 12% in North America, up from 7%, which offsets the 8.3% decline in Europe and is augmented by China's single-digit growth. With oil prices so high, Klaus says, "lightweighting is the name of the game."
  3. Trucks are up 65%, even as there are some recent slowing and a reduction in backlog. Worth watching but definitely robust, even in China. Europe is down single digits.
  4. Beverage cans up 2% to 3%, slightly better than the industry itself.
  5. Industrial turbines up 1% to 2% but getting much stronger of late.
  6. Consumer electronics remain strong, which is, wink-wink, Apple (AAPL). That's part of what Klaus calls the "aluminizing" of a whole sector, in part because of green desires -- remember, 75% of all aluminum is still in use because of recycling.

The only weakness remains nonresidential construction, and that is truly worrisome, because that's where banks make money, particularly in the U.S. But that could be a tailwind with any help in U.S. confidence, because we haven't built anything in years in this country. We are in "no crane" territory in most urban areas.

 

How about my biggest worry, an increase in Chinese capacity? Klaus painstakingly went over how the Chinese simply can't pull off the expansion plans. There's not enough water -- aluminum smelting requires a ton -- where the cheap coal is. Add higher bauxite costs from Indonesia; that's the chatter about how mining exports should be taxed higher. He says it's just not an efficient way for the party to put people to work.

 

So Alcoa against the world? In the morning, Alcoa wins.

 

The afternoon is another day!

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long AAPL.

11Comments
Apr 11, 2012 11:10AM
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Alcoa said their performance was a result of productivity improvements, price realization and mix adjustment.  Bottom line...these are all short term inititiatives to make sure they make their quarterly numbers.  So how many plants have they closed and how many emplolyees layed off as a result of the "productivity improvement".  Here's the key question nobody addressed..."How many more tons of aluminum did Alcoa sell in the quarter vs the previous one as well as YTD etc.  Selling more product is a better indicator of growth than cost cutting measures and passing on price increases which in turn get passed on to the consumer resulting in higher inflation. 
Apr 11, 2012 12:07PM
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BREAKING NEW OBAMA........TAKES CREDIT FOR ALCOA PROFITS... WANTS TO TAX THEM EVEN MORE TO MAKE IT FAIR.......FOR ALL COMPANIES.....
Apr 11, 2012 9:48AM
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cnbc can not be trusted.kiernan,kudlow and several other anchors are political hacks/wallstreet shills who wear knee pads (bartiromo) for crony capitalist. tune them out and try bloomberg-not perfect but not in the tank as far as these crooks.
Apr 11, 2012 11:04AM
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the alcoa story of recommending aa at 18 then 14 then 12 and shorting at 8 is true........

but the kicker to this story is that when this punk recommended it he named it

his BEST  dow stock for 2011.............now if this is how his best fares think what his worst

looks like

 

 

Apr 11, 2012 11:44AM
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the best part of the AA story was the idiot gushing over the CEO this morning on CNBC.......

he was bouncing in his chair ,talking over his colleagues ,and oozing all over the set

DISGUSTING................i mean he recommended it at 18 and its at 10....CMON

Apr 11, 2012 9:44AM
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What did they win? Avoiding bankruptcy.
Apr 11, 2012 5:02PM
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Cramer maybe you should visit madeinusa.org to see what IS made here. Posting ".....we haven't built anything in years in this country" is not only wrong it is also an insult to the good men and women that do still work in factories building everything from jumbo jets to running shoes and beer and wine to enjoy at the end of the day. Just because Wall Street only makes smoke and mirrors doesn't mean the rest of the country is so unproductive and lazy.
Apr 11, 2012 4:16PM
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Cramer is joke and always hss been.  Just another 'snake' that imbibes on this with no 'credibility'/  Ring the bell!  He should have been along time ago with his 'comedic' relief. He knows not a thing more than most with any 'smarts' do. He just 'piggybacks' it.  He is the ultimate 'snakeoil' salesman.  A con and gravitas with those that support him. 

Apr 11, 2012 3:06PM
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of course obama had nothing to do with the market doubling under his watch just as he has nothing to do with gas prices.............free market capitalists celebrate when they are winning and

whine for government intervention when they lose

Apr 11, 2012 1:57PM
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so what. AA is a lousy stock. look at its chart.

Largest Aluminum producer in the world... so wht. i dint make a dime on the bloody stock.

Useless!

Apr 11, 2012 1:04PM
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under obama the market has gone from the bush low of 6000+ to 12830

does obama get credit for this tremendous rise?

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