Alcoa: A Battleground Between Sound Management And Unsound Markets

I've always liked Warren Buffett's quote about how in a "battle" between good management and a bad industry, the industry's reputation will almost always remain intact. I think Alcoa (NYSE:AA) has a good management team (and that may be understating it) doing the right things. But I also think that the aluminum business is a fundamentally lousy business, and it's exceptionally difficult for any player to make real money on a sustained basis - long-term FCF margins for this industry have been close to zero.

Unless you believe something is going to change on a deep fundamental basis in the aluminum industry, it's challenging to make a long-term DCF argument for Alcoa. An EV/EBITDA approach is much more favorable, and Alcoa could benefit from more V-shaped recoveries in markets like autos and some industrial markets, but this is a tough, tough stock to love as more than a speculative trade.

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Alcoa: A Battleground Between Sound Management And Unsound Markets