Wednesday, August 29, 2007

Aluminum China Corp. (ACH)

In case you haven't been following individual stocks closely, the Motley Fool pointed out that Aluminum China Corp. is on the biggest one year gainers list.

I personally have not made money buying Aluminum China (ACH), but I know people who have. The fundamentals, if true, are remarkable. Even at the current price of nearly $70 a share (even after a 3:1 split a year and a half ago) the P/E ratio is around 5.

The thing that troubles me about the company is the industry. Typically metals and minerals are declared "safe and boring." However, Aluminum China is anything but; and I am still bullish due to industry averages. In the U.S., aluminum companies with P/E ratios under 20 are still considered "acceptable" as evidenced by Alcoa (AA) and Alcan (AL) with P/E ratios of 13 and 19 respectively.

With globalization, and China's rapid expansion, their economy still has room for maturation, which means potentially larger profits from both domestic and worldwide exports from Aluminum China.

Although it never hurts to take profits in the short term, especially if you are up significantly, I remain bullish on the stock long term. Current valuation is well below American industry standards, which could push the price even further.

Even if the stock were $150 a share today, the P/E would only be 11.8. Who knows, we may be headed for another 3:1 split.

Recommendation: Take both a short term and long term position, taking profits in the short term and holding some for the long haul.

I currently do not own shares of this company.

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