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We’ve been bombarded with Black Friday deals for weeks; what used to be a one-day, in-store event has turned into a month-long celebration of “the best deals of the year,” and we’d feel pretty foolish not to jump on that 70-inch TV, AirPods Max headphones, or Ninja 14-piece a knife we’ve been eyeing since July.
So, in the spirit of the week, I thought I’d revisit some cheap stocks I’ve been watching throughout 2023.
Both are trading within a few dollars of their 52-week lows, but this does not diminish the tremendous potential they possess.
This is what I mean…
Cheap Stock #1: Corning
For more than 170 years, the Corning Inc. (GLW) name was synonymous with the finest glass products. It has continuously innovated and set the industry standard for excellence.
Today, the company operates six different business segments – each of which is starting to benefit from powerful tailwinds.
Those six segments are…
- Optical Communications – accounting for 34% of Corning’s 2022 sales and 37% of its net income.
- Display Technologies – accounting for 22% of sales and 44% of net income.
- Specialty Materials – accounting for 14% of sales and 19% of net income.
- Environmental Technologies – accounting for 11% of sales and 16% of net income.
- Life Sciences – accounting for 8% of sales and 9% of net income.
- Hemlock and Emerging Growth Businesses – accounting for 11% of sales and 2% of net income.
The global 5G build tops the list of tailwinds that benefit Corning’s largest segment, Optical Communications. That is the one that provides optical fiber and related connectivity solutions to telcos, data centers and other businesses.
As the global build-out of 5G continues, so will demand for Corning’s optical cable and components. This large source of new demand could become shockingly large.
Looking further down the road, I expect the next decade to reward Corning with a level of profitability that few investors anticipate today. As a small bonus, the stock pays an annual dividend yield of 4.2%.
Let’s give the final word to Corning CEO Wendell Weeks…
When it comes to the critical components that enable high-tech systems in multiple markets we serve, the bar just keeps getting raised. This leads to a world where precision glass and ceramics win, and we won…
Corning is one of the world’s most experienced innovators in materials science. We combine our unparalleled expertise in glass science, ceramic science and optical physics with our proprietary manufacturing and engineering platforms to develop category-defining products that transform industries and improve lives.
Cheap Stock #2: Alcoa
Due to widespread anxiety about the imminent risk of recession, many “battery metal” stocks fell 50% or more.
Therefore, at their current depressed valuations, some of these stocks are valued at so much doom that they fail to reflect any of the long-term boom for battery metals.
One of those shares is Alcoa Corp. (AA)the largest American aluminum producer.
Aluminum doesn’t get the same high-profile attention that other battery metals do, but the solar industry is a huge consumer of aluminum, and so is the EV industry.
To be sure, Alcoa’s stock could fall further. But the current valuation is cheap enough that the stock could deliver outsized gains over the next few months, especially if demand for aluminum picks up faster and stronger than recession-phobic investors currently expect.
Additionally, the stock could also boost if the White House implements a ban on Russian aluminum. That story appeared in early February 2023.
Trends in the aluminum market are similar to trends in the copper market, which is good news for Pittsburgh-based Alcoa.
But first the bad news…
After rising to $4,000 per ton during the early days of the Ukrainian invasion, the aluminum price fell about 40%, which caused Alcoa’s share price to drop a total of 65%.
Incessant talk of recession and demand destruction is weighing on the price of aluminum. But as with copper, the long-term outlook for the silver metal is excellent.
A new report from the London-based International Aluminum Institute finds that global aluminum demand will jump around 40% by 2030 – and clean-tech industries will power most of that growth.
As a result, the report states that aluminum producers will have to increase their production from 86 million tons in 2020 to 120 tons by 2030.
According to research firm Wood Mackenzie, demand for aluminum from the solar industry could increase from just under 3% of total world consumption to nearly 13% by 2040.
In the EV industry, aluminum does not play a major electrical role, but the body and chassis of each Tesla Model S contains about 410 pounds of aluminum!
That is no accident. Because aluminum is much lighter than steel, EV manufacturers covet the metal. An aluminum vehicle can travel much farther on a single charge than a steel vehicle can.
Therefore, many EV manufacturers are increasing their aluminum consumption. In fact, aluminum is the fastest growing material in the automotive market.
In 2021, the automotive industry accounted for about 20% of global aluminum demand. Within that slice of the pie, the EV share was only about 2%.
But that percentage is sure to grow rapidly over the next decade. Wood Mackenzie expects aluminum demand for EVs to hit 2.4 million tons by 2025, and then quadruple to nearly 10 million tons by 2040. At that point, EV demand for aluminum accounted for about 12% of the global total.
Obviously, these forecasts are just guesses, but the trend is clear. EV demand for aluminum is increasing. And that’s just one source of demand from the cleantech sector.
According to the IAI, renewable energy needs will create demand for aluminum to replace existing copper cabling for power distribution. In total, the power sector will require an additional 5.2 million tons by 2030, according to the group.
You get the idea.
Interestingly, despite all the talk of weak demand for aluminum, global stocks of the metal are near historic lows…just as they are in the copper market!
The combined aluminum inventories of the main trading exchanges in London, Shanghai and New York fell to their lowest levels in more than 20 years.
But despite the strong supply-demand dynamics in the aluminum market, Alcoa’s stock price reflects all doom and no boom. The stock is changing hands for less than four times earnings.
From this low valuation, Alcoa offers great potential – both for the following months and for the years to come.
Greetings,
Eric Fry
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