1 Major Trend that Could Drive the Stock of Alcoa Inc Higherhttp://www.fool.com/investing/general/2014/03/13/1-major-trend-that-could-drive-the-stock-of-alcoa.aspx Matt DiLallo
March 13, 2014
Alcoa (NYSE: AA) hasn't treated its long-term investors all that well. Its stock has vastly underperformed the market over the past five and ten year periods. More recently, however, the stock has been doing much better as it has outperformed the market over the past year. That trend could continue as investors are just beginning to realize that the company is perfectly positioned to take advantage of a historic shift within the auto industry.
Setting the stage
Because a vast majority of consumers support better fuel economy, as well as to improve our stewardship of the environment and to our strengthen our nation defense, the U.S. government has instituted aggressive CAFÉ standards that will see average fuel economy double by 2025. These new standards pose a challenge to the auto industry, however, that challenge is a real opportunity for Alcoa.
The historic opportunity
Because of these advantages Alcoa sees increasing aluminum intensity in vehicles in the future. As the earlier slide noted, Alcoa sees aluminum body sheet demand per vehicle growing four-fold from 2012 levels by next year and growing ten-fold by 2025. That's a remarkable growth opportunity for the company.
To meet this growth the company recently completed phase one of capacity expansion at a facility in Iowa. Given that more auto manufacturers are using aluminum, we can expect the company to continue growing its capacity in the future to meet this new demand.