The rising cost of steel and fuel makes titanium an attractive alternative for airplanes that need to lighten their load to save costs. While not a pure-play titanium manufacturer like Titanium Metals (NYSE:TIE), Allegheny Technologies (NYSE:ATI) has been reaping the benefits of increased demand.
After all of its titanium sponge production facilities are completed (titanium sponge is used to produce titanium), Allegheny expects total capacity to be 46 million pounds. It also manufactures other specialty metals, including nickel, tungsten and carbide materials, along with a number of specialty steels.
The aerospace industry is a huge consumer of high-quality titanium. Boeing (NYSE:BA), for example, has shifted toward greater titanium use in its 777 and 787 Dreamliner models. Similarly, the Airbus A380 uses far more of the metal than its previous models.
CAPS take
Nearly 600 professional and novice investors have weighed in with their opinion at Motley Fool CAPS that Allegheny will overwhelmingly outperform the market. It shines with a five-star rating. Nearly 40% of those bullish investors are considered All-Stars, top-rated players who consistently outperform their peers.
CAPS player Patrick6k sees Allegheny as a stealth stock.
This is one of those metal companies that seems to have fallen under the average investor's radar as of late. Allegheny Tech has a good management team, a solid balance sheet, and a nice little boring niche that seems to have relatively no competition.
It's one thing to have a moat, but this company has a moat around a castle that nobody cares about ... at least not yet anyway. They cater to the government, oil and gas companies, construction, and several other various entities. The point being, with the construction development of India and China, along with the vast expansions taking place with U.S. refineries trying to increase their refining capacity ... not to mention the exorbitant spending taking place with the U.S. government and defense right now ... Allegheny Tech is in a perfect position to reap enormous profits for several years to come.
It's the unrelenting demand for Allegheny's alloys that attracts rcbeltz.
Steady growth due to increasing demand for their high quality specialty metals such as titanium alloys. Just landed a nice contract with GE (NYSE:GE) and they have committed to building a new facility in Western PA so they are reinvesting in their business as opposed to reaping short-term profits.
My take
Without question, Allegheny Technologies has been on a tear, so I don't think we can say it's under the radar of too many people. Just a few years ago this stock was trading just over $2 a stub, while today it sits at $108 per share. That molten hot pace would certainly make it seem difficult to sustain its past performance. Yet demand is there. So the question is this: Can the demand fuel further increases in the stock, or has it been a momentum play that will crack like rusted iron? Trading at 76 times free cash flow, Allegheny is expensive. But with titanium in short supply and burgeoning orders for it, prices and profits should still climb. I don't think we've hit the peak just yet.
Your take
Do you agree with our CAPS community that titanium will steel Allegheny Technologies' growth? Is its steel business as stainless as the rest of the operation? Speak up and let us know.
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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
