Alcoa Inc (AA) a Bellwether … for China?

The takeaway
While the numbers from Alcoa Inc (NYSE:AA) were better than expected, they aren’t the stuff investors’ dreams are made from. Like many commodities-backed concerns, the stock and the company have come under pressure. Alcoa appears to be improving its outlook, but it still has a fair way to go. Relative to diversified plays such as BHP Billiton Limited (ADR) (NYSE:BHP) or Vale SA (ADR) (NYSE:VALE), it’s hard to see a great argument for Alcoa. Both BHP and Vale trade at a lower price-to-earnings multiple than Alcoa — 16.2 and 14.6, relative to 34.5. BHP has an operating margin of 30%, Vale operates at 29%, and Alcoa is at 3%. Finally, with Alcoa offering a dividend yield of 1.5% relative to 5.9% for BHP and 4.5% for Vale, the income argument is also against Alcoa.

Ultimately, Alcoa Inc (NYSE:AA) provides some valuable insights into the position and health of China, but it hasn’t sufficiently turned the corner to warrant a major allocation in most portfolios. If the company can continue to improve, it may become a core name again, but that’s probably several quarters away.

The article Alcoa a Bellwether … for China? originally appeared on Fool.com.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool owns shares of Vale.

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