Analyzing 3 Aluminum Stock Buy, Hold, or Sell Opportunities for 2024

The aluminum industry is well-positioned for a massive expansion, owing to its application across various sectors and its ever-increasing demand as input for environmentally friendly and cutting-edge products.

Given the industry’s impressive prospects, in this piece, we assessed three aluminum stocks to determine how they can help an investor capitalize on the industry's tailwinds.

Constellium SE (CSTM) appears to be a solid buy candidate for 2024, given its strong fundamentals. On the other hand, I think Kaiser Aluminum Corporation (KALU) should be kept on one's watchlist for better entry opportunities, while Alcoa Corporation (AA) should be best avoided, given its weak fundamentals.

Before delving deeper into the fundamentals of the three stocks, let’s take a quick look at the industry landscape.

Aluminum is one of the world’s most abundant metals, typically extracted from bauxite ore, and it is almost 100% recyclable. 

The increasing demand for aluminum from the food, packaging, and pharmaceutical industries will support the market's growth, while it is anticipated that growth in the electric vehicles market will likely provide enormous growth opportunities for the aluminum industry. Moreover, the increasing demand and recovery in the construction and building industry can be a major growth driver for the aluminum market by 2028.

Since October 2023, aluminum prices have engaged in rangebound trading with a slight upward bias. Overall, prices have been on the rise, influenced by shifting macroeconomic and microeconomic dynamics. This trend is expected to continue in 2024, given the market’s volatility and unpredictability. However, the demand for aluminum is expected to keep rising.

The global aluminum market is projected to reach $255 billion by 2030, growing a 6.1% CAGR.

Considering these conducive trends, let's take a look at the fundamentals of the three Aluminum stocks, starting with the weakest from the investment point of view.

Stock #3: Alcoa Corporation (AA)

AA produces and sells bauxite, alumina, and aluminum products in the United States, Spain, Australia, Iceland, Norway, Brazil, Canada, and internationally. The company operates through three segments: Bauxite; Alumina; and Aluminum. 

On November 17, 2023, AA paid a quarterly cash dividend of $0.10 per share of the company’s common stock to stockholders. Its annualized dividend rate of $0.40 per share translates to a dividend yield of 1.18% on the current share price. Its four-year average yield is 0.45%.

AA’s trailing-12-month CAPEX/Sales of 4.84% is 34.7% lower than the industry average of 7.42%. Its trailing-12-month gross profit and EBITDA margins of 6.60% and 2.80% are 76.9% and 84.1% lower than the industry averages of 28.53% and 17.54%, respectively.

For the fiscal third quarter that ended September 30, 2023, AA’s sales and adjusted EBITDA, excluding special items, stood at $2.60 billion and $70 million, down 8.7% and 66.7% year-over-year, respectively.

For the same quarter, its adjusted net loss attributable to AA came to $202 million, while adjusted EPS stood at a negative $1.14. Moreover, as of September 30, 2023, AA’s total current assets stood at $4.37 billion, compared to $5.25 billion as of December 31, 2022.

Street expects AA’s revenue and EPS in the fiscal fourth quarter ending December 2023 to be $2.61 billion and negative $0.84, respectively.

The stock declined 17% over the past nine months to close the last trading session at $34.00. Over the past year, it declined 27%.

AA’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an F grade for Sentiment and a D for Value and Stability. Within the Aluminum industry, it is ranked #4 out of 5 stocks.

To see additional POWR Ratings for Growth, Momentum, and Quality for AA, click here.

Stock #2: Kaiser Aluminum Corporation (KALU)

KALU manufactures and sells semi-fabricated specialty aluminum mill products in the United States and internationally. The company offers rolled, extruded, and drawn aluminum products used for aerospace and defense, aluminum beverage and food packaging, automotive and general engineering products. 

During the first nine months ended September 30, 2023, KALU returned $38 million to stockholders through quarterly dividends.

On November 15, 2023, KALU paid stockholders a quarterly cash dividend of $0.77 per share. The company has paid dividends for 16 consecutive years.

Its annualized dividend rate of $3.08 per share translates to a dividend yield of 4.33% on the current share price. Its four-year average yield is 3.49%. KALU’s dividend payments have grown at CAGRs of 4.8% and 7% over the past three and five years, respectively.

KALU’s trailing-12-month asset turnover ratio of 1.35x is 92.6% higher than the industry average of 0.70x, while its trailing-12-month cash per share of $2.81 is 80.4% higher than the industry average of $1.56.

In the fiscal third quarter that ended September 30, 2023, KALU’s net sales stood at $743.60 million, while its non-GAAP operating income increased 603.4% year-over-year to $20.40 million.

For the same quarter, its adjusted net income came at $7.40 million, compared to an adjusted net loss of $3.40 million in the prior year quarter. Also, its adjusted earnings per share came in at $0.46, compared to an adjusted loss per share of $0.21 in the year-ago quarter.

Moreover, its adjusted EBITDA increased 65.9% year-over-year to $47.60 million.

Street expects KALU’s EPS in the fiscal year ending December 2023 to be $2.02. However, its revenue is expected to decline 10.5% year-over-year to $3.07 billion.

The stock has declined 5.4% over the past three months but gained 23.5% over the past month to close the last trading session at $71.19.

KALU’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system.

KALU has an A grade for Growth and a B for Momentum. Within the same industry, it is ranked #2.

Beyond what we’ve stated above, we have also rated the stock for Value, Stability, Sentiment, and Quality. Get all ratings of KALU here.

Stock #1: Constellium SE (CSTM)

Headquartered in Paris, France, CSTM designs, manufactures, and sells specialty rolled and extruded aluminum products for the packaging, aerospace, automotive, other transportation and industrial end-markets. It operates through three segments: Packaging & Automotive Rolled Products; Aerospace & Transportation; and Automotive Structures & Industry. 

CSTM’s trailing-12-month asset turnover ratio of 1.46x is 108.4% higher than the industry average of 0.70x. Its trailing-12-month ROCE and ROTC of 17.24% and 5.64% are 126.4% and 3.2% higher than the industry averages of 7.61% and 5.47%, respectively.

In the fiscal third quarter that ended September 30, 2023, CSTM’s revenue stood at €1.72 billion ($1.90 billion), while its gross profit increased 18.8% year-over-year to €158 million ($174.38 million). Moreover, its free cash flow increased 5.4% year-over-year to €78 million ($86.09 million).

For the same quarter, net income attributable to equity holders of CSTM and earnings per share attributable to the equity holders of CSTM stood at €64 million ($70.63 million) and €0.43, respectively.

Street expects CSTM’s EPS in the fiscal fourth quarter ending December 2023 to increase 50.7% year-over-year to $0.34. Its revenue is expected to be $1.65 billion.

The stock has gained 17.6% over the past six months to close the last trading session at $19.96. Over the past year, it has gained 68.2%.

CSTM’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

CSTM has a B grade for Value and Momentum. It is ranked first within the Aluminum industry.

Click here for the additional POWR Ratings for CSTM (Growth, Stability, Sentiment, and Quality).

What To Do Next?

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AA shares fell $0.33 (-0.97%) in premarket trading Tuesday. Year-to-date, AA has declined 0.00%, versus a 0.00% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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