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Stock in the spotlight: Adding growth exposures

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By Michael McCarthy

Markets near high points present challenges to investors. One problem is caused by the need to re-weight a portfolio as conditions change. Finding a performing stock to sell is straightforward. Determining which stocks to buy when valuations are full to expensive is more difficult.

Alumina Ltd (AWC) is an unusual stock in that it has only one asset – a 40% stake in Alcoa World Aluminium and Chemicals (AWAC). AWAC is a global miner and smelter of bauxite and aluminium, and has operations on four continents. 

Aluminium producers fell out of favour in a carbon-constrained world because they consume huge amounts of power in the production process. However, the world still needs aluminium and the spot price has rallied more than 30% over the last eighteen months as confidence in the industrial outlook grows.

At $1.70, AWC remains well below its all-time high above $7.00. Some analysts are concerned about the dividend outlook, as first quarter payments from AWAC dropped below the required run-rate. In my view, this is a timing issue, and AWC is likely to increase its dividend again. A scenario where industrial activity swings higher and inventories run down is supportive of a higher Aluminium price, and a more profitable AWC. 

Investors underweight resources and looking to add growth-exposed stocks may find AWC a suitable choice.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Published: Tuesday, May 09, 2017


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