Board member Ratan Tata buys Alcoa shares after earning results

Alcoa Inc., the $9.5 billion market cap producer of aluminum, reported its earnings for the fourth quarter of 2012 earlier this month and the market's reaction was neutral. The stock price showed little change after the company announced that lower costs had helped it turn a profit, something it had not achieved a year earlier or in the third quarter of 2012. Revenue had declined 2% from the fourth quarter of 2011 but crawled up 1% on a q/q basis.

Two of Alcoa's Board members, Martin Sorrell and Ratan Tata, thought that Alcoa's report was good news. Each of them bought close to 2,100 shares (a slightly higher number for Sorrell than for Tata) of the stock at prices of about $8.92 per share on January 11th. Sorrell now owns about 8,100 shares while Tata's direct holdings amount to close to 34,000 shares of stock. Insider purchases, statistically, are bullish signals and consensus insider purchases- events when more than one insider is buying- are particularly good signals, though of course there are cases when stocks bought by insiders underperform the market. These particular insiders were also buying last fall, one in October and one in November, at prices less than $8.90 per share Research insider purchases at Alcoa

Wall Street analysts expect Alcoa to earn 64 cents per share in 2013, as opposed to the 24 cents per share in adjusted earnings the company had in 2012. The 64 cents figure results in a current-year P/E of 14, which would be about right for a company with very low earnings growth. However, the sell-side believes that Alcoa's EPS will continue to significantly increase in 2014- the forward P/E is only 10- and so we'd characterize the analyst consensus as bullish. Of course, that doesn't mean too much, and as with many other basic materials companies Alcoa has high market exposure (the stock's beta is 2). Hedge funds are somewhat cool on Alcoa: the only two positions worth over $20 million in our database of 13F filings belonged to Ron Gutfleish's Elm Ridge Capital and billionaire Israel Englander's Millennium Management; each of these funds had sold shares in the previous quarter.

Alcoa wouldn't be a bad value if it hits its earning targets for this year, and if it continued to improve in 2014 it would turn out to be a good value at the current price. With multiple insiders buying, we would hold off for now but certainly think that it could make for a good watch list stock for the first half of the year.