Aluminum prices rose on Wednesday to their highest level in more than two months. Benchmark aluminum on the London Metal Exchange surged 1% to $2,867 per ton, as expectations of higher deficits were reinforced by higher power prices in Europe. The benchmark had touched $2,880.50 per ton in the day, reflecting a more than 10% rise since November 5.
On top of that, the long-term fundamentals of lightweight metal are positive. It is set to outperform other metals on the London Metal Exchange this year because of slow recovery in production and robust demand. Aluminum prices are forecasted to grow 6% year-over-year in 2022 because of a supply shortage arising out of China, the biggest producer of the metal.
Therefore, stocks of Aluminum Corporation of China Limited (ACH) and Constellium SE (CSTM) might be solid additions to one’s portfolio. These stocks look undervalued at their current prices.
Aluminum Corporation of China Limited (ACH)
ACH and its subsidiaries manufacture alumina, primary energy products in China. It operates through the broad segments of Alumina; Primary Aluminum; Trading, and Energy. The company is based in Beijing, the People’s Republic of China.
In terms of its forward EV/Sales, ACH is currently trading at 0.74x, 59.3% below the industry average of 1.82x. Its forward Price/Sales multiple of 0.24 is 84.3% lower than the industry average of 1.56.
For the third fiscal year ended December 31, 2020, ACH’s gross profit increased 10.5% year-over-year to $2.06 billion. Profit for the year came in at $241.08 million, up 5.5% from the prior year. Total comprehensive income for the year rose 12.7% year-over-year to $259.41 million.
The consensus revenue estimate for the fiscal fourth quarter of 2021 of $9.85 billion indicates a 21.5% year-over-year increase.
The stock has gained 43.1% over the past year and 12.2% over the past month to close yesterday’s trading session at $13.25.
ACH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. ACH has a Growth and Value grade of A and a Momentum and Sentiment grade of B. In the six-stock Aluminum industry, it is ranked #2.
In addition to the POWR Rating grades we’ve stated above, one can see ACH ratings for Stability and Quality here.
Constellium SE (CSTM)
CSTM produces and sells high-valued aluminum products and solutions for various applications. The company operates through three segments - Packaging & Automotive Rolled Products; Aerospace & Transportation; and Automotive Structures & Industry. It is headquartered in Paris, France.
On December 8, CSTM announced the reopening of its upgraded 144-inch cold rolling mill at its facility in Ravenswood, West Virginia. The restart is expected to enable CSTM to produce higher quality plates in required volumes.
On September 23, the company declared that it would supply aluminum structural components for the Ford Motor Company (F) F-150 Lightning model, which marks an addition to the existing more than 50 million components that CSTM supplies to Ford. This should add to the company’s revenue stream.
CSTM’s forward EV/Sales multiple of 0.74 is 58.9% lower than the industry average of 1.79. In terms of forward Price/Sales, it is currently trading at 0.40x, 73.6% below the industry average of 1.52x.
For the third fiscal quarter ended September 30, CSTM’s revenue increased 35.4% year-over-year to €1.59 billion ($1.79 billion). Net income and EPS attributable to equity holders came in at €99 million ($111.96 million) and €0.65, up 395% and 400% from the prior-year quarter, respectively.
The consensus EPS estimate of $2.11 for the fiscal year 2021 indicates a 1,272.2% year-over-year improvement. Likewise, the consensus revenue estimate of $6.69 billion for the ongoing year reflects an increase of 13.6% from the same period prior year. Moreover, CSTM has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 30.5% over the past year to close yesterday’s trading session at $18.97. It has gained 11.4% over the past month.
It’s no surprise that CSTM has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Value, Momentum, and Sentiment. It is ranked #1 in the same industry. Click here to see the additional POWR Ratings for CSTM (Growth, Stability, and Quality).
ACH shares were trading at $13.22 per share on Thursday afternoon, down $0.03 (-0.23%). Year-to-date, ACH has declined -3.71%, versus a -1.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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