Vince Stanzione tips Alcoa (NYSE:AA) for 2016 50%+ upside

Alcoa Inc (NYSE:AA) produces and manages primary and fabricated aluminium, and alumina worldwide. The engineered segment offers titanium, alloy, aluminium castings, fasteners, wheels, architectural extrusions, forgings and hard alloy extrusions. Its products are used in transportation on air, land and sea; packaging; building and construction; oil and gas; defence; consumer electronics; brazing; power generation; and industrial applications.

Alcoa has been a terrible investment in recent years; the stock is down 40% in 2015 and down from $40 in 2008 to around the current $9, so why would you consider buying this zombie stock? Well Alcoa is due to spin off its manufacturing business in the second half of 2016 and I believe the company is approaching a point where it will be re-rated. A full outline is available on the company’s website.

What we have is the old Alcoa, which frankly is still going to struggle but may have a small bounce, and the new higher margin business, which has good potential and will attract new investors. At $9 I can see this stock move up by 50%, remember you will end up with two shares. If you spread-bet the stock the financial bookmaker will adjust the bet for the spin off so you will end up with a bet on Alcoa and a bet on the new spin-off company. The plan is the two parts will be worth more than the whole.

This is a fairly contrarian investment but the higher-margin aerospace business looks like an unloved gem and of course I’d recommend only using risk capital and be ready to hold for 12 months.

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