Basic Materials sector may not have the glamour of tech sector and internet stocks, but it is ideally suited for low volatile, fundamentally driven investment. The sector is inextricably linked to overall economy and acts as a proxy for broad economic trends. StockCall analysts have completed two technical analysis for companies Alcoa Inc. (NYSE: AA) and Century Aluminum Company (NASDAQ: CENX).
Aluminum stocks are expected to fare relatively better in 2013 as Alcoa Inc. expects global demand to grow by 7%, up from 6% growth rate it achieved in 2012. Aluminum sector will also benefit from stabilizing auto sector, which is among the biggest revenue generator for the sector. Similarly, improvement in the economy will also lead to growth in the aviation sector, another major customer segment for aluminum companies. The sector is steadily moving towards improvement as the other sectors grow strong with the improvement in economy. Uptick in Housing and construction segment will also boost the prospects for the companies like Century Aluminum Co.
Alcoa Up on Strong Quarterly Numbers
Alcoa Inc. [Free Technical Report on AA] [1]continued its track record of meeting or exceeding consensus estimates for its quarterly numbers. The company kicked off the earning season by reporting $5.9 billion in revenue, beating estimates for revenue at $5.6 billion. Alcoa also approved quarterly dividend of 3 cents per share, offering 1.3% dividend yield at current market price. While the stock offered negative capital return in 2012, it has done fairly well so far in the current year. The company boasts of a strong balance sheet and a healthy cash position since it generated $933 million in cash flow from operations, up by $670 million from the previous quarter.
Alcoa currently offers good entry point. The company is expected to grow its EPS by over 26% and its bottom-line is likely to benefit from recovering prices for aluminum. However, at the very same time, it should also be kept in mind that the company's revenue for its latest reported quarter actually 2% lower than the comparative quarter of the last year. Alcoa, despite its leadership position in the sector, pays one of the lowest dividend among its peers. It has also been slashing its dividends in the recent past. So, if you are looking for an income stock, it would be better to go elsewhere. However, Alcoa can be good bet in the medium- to long-run.
Century Aluminum Looking to Break Loss Streak
With $791 million market capitalization, Century Aluminum is one of the relatively smaller players in the sector. The fact that it lost about half of its market value in the past 24 months is not very helpful either. The stock also provided negative return in 2012, largely in-line with the overall trend among the aluminum stocks. But it also means that it has attractive Price to Book ratio as it has considerably higher valued assets on its Balance Sheet.
Century Aluminum had reported its third quarter revenue at $304.6 million, beating consensus estimate of $297.7 million. As the company is fundamentally strong, any recovery in aluminum demand and pricing in 2013 is expected to have positive impact on the stock.
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