The lightweight and recyclable properties of aluminum make it a suitable alternative in a wide range of applications. With the reopening of industrial activities, surging aluminum demand has pushed aluminum prices up to 10-year highs. The metal has climbed almost 80% in price from May 2020, and analysts expect the global aluminum market to grow at a 5% CAGR of 5% between 2021 - 2026.

Given this backdrop, we think fundamentally sound aluminum stock Constellium SE (CSTM) could soar in price in the near term.

Conversely, a military coup in Guinea, the location of the world’s largest bauxite reserves, is anticipated to precipitate a supply shortage and uncertainty in the market. So, we think fundamentally weak aluminum stocks Alcoa Corporation (AA) and Century Aluminum Company (CENX) are best avoided now.

Stock to Buy:

Constellium SE (CSTM)

CSTM produces and sells high-valued aluminum products and solutions for a range of applications. The company operates through three segments: Packaging & Automotive Rolled Products; Aerospace & Transportation; and Automotive Structures & Industry. It is headquartered in Paris, France.

In June CSTM partnered with Audi, a luxury brand of Volkswagen AG (VWAGY), to provide advanced aluminum solutions for the Audi e-tron GT. Given the use of aluminum in electric vehicles (Evs) due to its lightweight property, and the growing EV market, this partnership is expected to benefit CSTM significantly in the near term.

In its second fiscal quarter, ended June 30, CSTM’s revenue increased 47.2% year-over-year to €1.52 billion ($1.78 billion). Its new income and EPS attributable to equity holders was  €108 million ($126.62 million) and €0.73, respectively, up a substantial amount from their negative year-ago values. The company’s adjusted EBITDA rose 109.9% from the same period last year to €170 million ($199.30 million).

A $0.27consensus EPS estimate for the current quarter (ending September 2021) indicates a 68.8% year-over-year improvement. Likewise, the $1.67 billion consensus revenue estimate for the current quarter reflects a 16.5% increase  from the same period last year. Furthermore, CSTM has an impressive earnings surprise history; it has topped consensus EPS estimates in each of the trailing four quarters. The stock has gained 125.6% in price over the past year to close Friday’s trading session at $19.74.

CSTM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

CSTM has a Value and Momentum grade of B. In the 6-stock Aluminum industry, it is ranked #1.

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

Stocks to Avoid:

Alcoa Corporation (AA)

AA is the seller of bauxite, alumina, and aluminum in the United States and overseas. In addition, the Pittsburgh, Pa.-based company is engaged in bauxite mining, alumina refining, and the delivery of an advanced aluminum smelting solutions network.

In July, AA announced that it would supply its low-carbon primary aluminum EcoLumTM to German extrusion alloy company Erbslöh Aluminium. Regarding this venture, Adam Smith, AA’s Vice President of Aluminum Sales and Trading, said, "Erbslöh Aluminium has a strong reputation as a manufacturer of high-quality products for a range of critical industries, and this agreement reflects our continued drive to advance sustainably and work with customers on solutions."

AA’s sales decreased 1.3% sequentially to $2.83 billion in its second fiscal quarter ended June 30, while its total costs and expenses increased 5.3% year-over-year to $2.37 billion. In the six months ended June 30, its cash used for financing activities increased 266.1% year-over-year to $421 million.

A $11.60 billion  consensus revenue estimate for the next year (fiscal 2022) reflects a 1.8% year-over-year rise. However, analysts expect its EPS to decline 1.6% from the current year to $4.92 in the next year. The stock has declined marginally in price over the last five days to close Friday’s trading session at $48.83.

AA’s poor prospects are also apparent in its POWR Ratings. The stock has a Stability grade of D. It is ranked #2 of six stocks in the Aluminum industry.

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

Century Aluminum Company (CENX)

CENX, in Chicago, produces primary aluminum and primary aluminum products in the United States and Iceland. The company also offers smelting services.

In July, CENX declared that its Iceland-based subsidiary Norðurál Grundartangi ehf had decided to extend its partnership with the National Power Company, Landsvirkjun, through 2026. However, it might take some time before the company’s growth strategy can be realized.

For the second fiscal quarter, ended June 30, CENX’s total net sales increased 31.4% year-over-year to $528 million. However, its net loss rose 30.5% from the same period last year to $35.10 million, and its loss per common share increased 30% from the prior-year quarter to $0.39.

The Street’s  $2.23 billion revenue estimate for the current year (fiscal 2021) reflects a 38.9% year-over-year increase. However, analysts expect EPS to remain negative in the current year. Furthermore, CENX has missed consensus EPS estimates in each of the trailing four quarters. The stock has lost 21.3% in price over the past six months to close Friday’s trading session at $13.03.

CENX’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D grade, which translates to Sell in our POWR Ratings system.

CENX has an F grade for Sentiment, and a D grade for Value. It is ranked #6 in the Aluminum industry.

In addition to the POWR Rating grades we’ve stated above, one can see the CENX ratings for Growth, Momentum, Stability, and Quality here.

AA shares were trading at $47.51 per share on Monday afternoon, down $1.32 (-2.70%). Year-to-date, AA has gained 106.12%, versus a 16.45% rise in the benchmark S&P 500 index during the same period.

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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