Alcoa Inc. stock has had a strong runup since last fall, but its gains are less impressive when you consider just how far the aluminum price has gained since the market crash of 2008 - or the Dow's rally, for that matter.
That lagging performance is precisely why Desjardins Securities Inc. analyst John Redstone is particularly bullish on the stock, arguing that the aluminum giant has a lot of catching up to do.
Prior to the recession in 2008, Alcoa traded roughly in sync with the Dow Jones industrial average and the London Metal Exchange aluminum price. But it's been significantly lagging ever since. "The Dow and aluminum price have returned to 97 per cent and 87 per cent, respectively, of their pre-crash levels. Yet, AA's market capitalization is only 53 per cent of the pre-crash level," Mr. Redstone points out.
Mr. Redstone expects Alcoa will catch up over the next 12 months, providing the world economy and aluminum market continue to improve.
Also working in Alcoa's favour: The company's financial condition is improving, with its debt-to-capital ratio dropping to 34.8 per cent from 42.5 per cent and its cash on hand more than doubling. Rolling mill operations are becoming more profitable and its co-owned Saudi Arabian Ma'aden aluminum project - one of the lowest-cost operations in the world - will be coming onstream over the next few years.
Mr. Redstone is also upbeat on the aluminum market itself, expecting demand will outstrip supply through 2012, driving prices higher to average $1.40 (U.S.) a pound in 2011 and $1.50 in 2012.
Upside: Mr. Redstone rates Alcoa as a "buy-average risk" with a $28.10 (U.S.) one-year target price.
That's among the most bullish on the Street. The median price target among 14 analyst estimates tracked by Capital IQ is $19.50, with targets ranging from $13 to $28.10.
Trilogy Energy Corp.'s quarterly financial results and year-end 2010 reserves were largely as expected, but TD Newcrest analyst Roger Serin is encouraged by the company's strong growth potential, thanks, in part, to recent successful tests at its Kaybob Montney oil play.
Upside: Mr. Serin raised his price target by $2.50 to $20 but maintained a "hold" rating.
First Majestic Silver Corp. reported fourth-quarter adjusted earnings of 13 cents a share, well below the consensus estimate of 21 cents, due in part to higher-than-expected cash costs. But the company provided strong production guidance for 2011, forecasting silver output of 7.5 million ounces, and its growth profile is "one of the best in the silver space," said CIBC World Markets Inc. analyst Brian Quast.
Upside: Mr. Quast raised his price target to $15.50 from $14.25.
With the rising oil price, continued demand for lead, higher drilling activity, and improving Canadian GDP, industrial waste management firm Newalta Inc. "appears to be set to see stronger conditions in the first quarter of this year than any time since early 2008," said National Bank Financial analyst Rupert Merer. He believes the company may hike its dividend later this year.
Upside: Mr. Merer raised his price target by $1.25 to $15.25.
Petrodorado Energy Ltd.'s recent equity financing has significantly strengthened the company's finances, said TD Newcrest analyst Jamie Somerville. The company "is one of our preferred ways to invest in Colombian oil and gas," with the lowest multiple to fully-risked net asset value per share in TD's coverage of international exploration and production companies.
Upside: Mr. Somerville maintained a "speculative buy" recommendation and $1.15 price target.
Darcy Keith