Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
Aluminum Corp. of China ADS (NYSE: ACH) is the favorite speculative investment idea for 2007 from Dr. Mark Skousen, editor of Forecasts & Strategies and the host of the annual FreedomFest investor think tank.
He explains, "The company, commonly known as Chalco, is the world's second-largest aluminum maker. Lighter than steel and resistant to corrosion, and high in electrical conductivity, alumina is widely used in applications such as construction, power, packaging, and autos.
"However, commodity prices have cooled off lately and alumina has been no exception. Prices have fallen during the past year -- and that retreat has begun to affect the company's profitability. But Chalco is mitigating the negative impact of declining prices by snapping up smelters in China to expand its aluminum output.
"The company has also just announced a restructuring of its assets after buying two Chinese aluminum firms. Chalco announced that it plans to offer a stock swap involving Shandong Aluminium Industry Co. and Lanzhou Aluminium Co. Most analysts I've talked to think that this move is positive. Chalco's CFO told investors that the company would hold a shareholder meeting around January 15 to vote on the share swap.
"Meanwhile, Chalco not only sells for eight times prospective earnings, but the stock also sells at just 35% of sales. That's awfully cheap, especially when you consider that Chalco has operating margins of 31% and management is earning a healthy 29% return on equity.
"True, the company's fortunes are closely tied to China's booming demand for aluminum products. But there's no good reason to think that demand -- or China's economy -- will cool off any time soon. Chalco trades at a 30% discount to Alcoa. I believe the stock will significantly rise in value."
Dr. Mark Skousen is the editor of Forecasts & Strategies, and the host of the annual FreedomFest investor think tank. To see Mark's top consrvative idea, click here.
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