It was reported on Sunday, June 21, that Anglo-Swiss mining company Xstrata has proposed a merger of equals to the board of Anglo American ADR (NASDAQ: AAUK), hoping to create a new, more competitive mining giant. Rumors have been milling about for a while.

Together, Anglo American and Xstrata would have a market capitalization of approximately $68 billion, (AAUK's $35 billion + XTA.L's $33 billion) and be larger than Rio Tinto plc ADS (NYSE: RTP), which ended the trading day last Friday with a capitalization hovering over $42 billion.

Mattel (NYSE: MAT) reported that its fourth-quarter profit fell 46% to $176.4 million, or 49 cents a share, on sales of $1.94 billion from $2.19 billion as it was hurt by the stronger dollar and the weakest holiday season in decades. This was much lower than analyst estimates for the toymaker of 72 cents of profit on $2.2 billion of sales, according to Thomson Reuters. MAT shares declined over 18% in premarket trading.

Humana (NYSE: HUM) reported that its fourth-quarter net income fell 28% to $174.1 million, or $1.03 a share, on higher claim expenses, lower investment income, and a 12% income decline in its government segment business. Analysts polled by FactSet had expected fourth-quarter earnings of $1.07 a share. HUM shares declined nearly 4% in premarket trade.

During these times of crushing financial news, collapsing stock markets combined with tremendous volatility, government ineptitude (what else is new), doubt, pessimism, and yes -- fear --- we all need to hear the reassuring words of one of our most successful investment sages.

'My pal Warren' has been filling the media with market supporting bits of wisdom and backing it up by making strategic investments through Berkshire Hathaway (NYSE: BRK.A) and more investments utilizing his personal fortune.

Yesterday I received the following in an email quoting Peter Lynch, who managed to gain an average of 29.7% per year for 13 straight years while he was running Fidelity Magellan fund. Once someone asked him how he knows what stage the market is at, he replied:

• "If I go to a party, and introduce myself as a mutual fund manager to strangers, and they walk away from me and talk to other people instead, I know the market is near the bottom. If they sit down and ask me what stocks they should buy, the market is at normal levels. If they sit down and TELL ME what stocks to buy, the market is near the top."

The Summer Olympics are only days away and what the Chinese had hoped would be their coming out party to celebrate all that is good, may instead become quite the opposite.

The air pollution in Beijing is so bad that even reducing automobile traffic by 50% has not helped much. China is now considering a 90% reduction according to news reports. Athletes are staying in other countries until the games begin so that they may train somewhere they can breathe. There are also reports that many athletes involved in stamina events will be forced to wear masks to protect themselves from the particulates in the air.

Now Reuters is reporting that "Some International Olympic Committee officials cut a deal to let China block sensitive websites despite promises of unrestricted access, a senior IOC official admitted on Wednesday."

So the world media will not be able to do their jobs in a manner they are accustomed to. But who are we actually referring to? Western media, of course, because half the world still limits access to information to some degree.

Last year, my best Chasing Value recommendation was Aluminum Corp of China ADS (NYSE: ACH), which sailed from $22 per share to a 52-week high of $90.95. I will take credit for finding a winner, but I cannot in all honesty say that I thought it would more than quadruple -- that part was luck. (The original story was Chasing Value: Aluminum Corporation of China ADS, which I still think is worth a read today.)

If you acquired what is often referred to as Chalco (China Alum. Co.) anywhere near the time I recommended it and still own it you are probably still very content with only perhaps a 90% gain as the stock has come down some, closing last Friday May 9 at $40.98

Another of my recommendations was General Dynamics Corp (NYSE: GD), which closed Friday at $90.92. This one is only up a few percentage points from my starting point of $88 per share, but you will note, curiously, that it is only 3 cents off ACH's high. Given the market's bad year, a gain when the market is losing is a bigger plus than the casual observer would perceive. The defense sector has provided the anticipated market defense as I discussed.

The new earnings seasons kicks off tomorrow after the market closes when Alcoa Inc. (NYSE: AA) is scheduled to report first-quarter results.

Pittsburgh-based Alcoa has missed earnings estimates in only one quarter out of the past five. When the leading aluminum producer reported fourth-quarter results back in December, earnings of 36 cents per share beat the consensus of analysts surveyed by Thomson Financial by three cents, but were down from 74 cents per share in the same quarter of 2006. For this current quarter, analysts expect earnings of 50 cents per share.

Alcoa's full-year 2007 earnings per share of $2.60 missed estimates of $2.83, and were down from $2.96 for 2006. However, Alcoa also reported record revenue of $30.7 billion, as well as record income from continuing operations.

In March, Alcoa announced a quarterly common stock dividend of 17 cents per share, continuing a more than 60 year streak of quarterly dividends. In other recent news, former Merrill Lynch (NYSE: MER) CEO Stan O'Neal joined Alcoa's board of directors in January. Alcoa joined rival Aluminum Corp. of China (NYSE: ACH) in acquiring a stake in Rio Tinto (NYSE: RTP). And a lawsuit against Alcoa by the government of Bahrain was suspended by the U.S. Justice Department, which is conducting its own bribery investigation.

Alcoa's forecast earnings per share growth for the year is 9.85%, which is better than the industry average and the S&P 500. The consensus recommendation from analysts is to buy Alcoa, and has been for at least 90 days. The share price has been climbing from the 52-week low of $26.69 in January, and closed at $39.00 on Friday.

BloggingStocks contributor Sheldon Liber took a good look at Alcoa's prospects back in February. For other news that could influence Alcoa's results, see BloggingStocks' Alcoa coverage.

Alcoa, Inc. (NYSE: AA) shares are rising today after a memo was disclosed which revealed that AA and Aluminum Corp. of China (NYSE: ACH) formed a special purpose vehicle, "with the intent to acquire up to 14.9%" of Rio Tinto's (NYSE: RTP) London-listed stock. The two had bought a 12% stake in Rio Tinto in January. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AA.

After hitting a one-year high of $48.77 in July, the stock hit a one-year low of $26.69 in January. AA opened this morning at $36.01. So far today the stock has hit a low of $35.71 and a high of $36.42. As of 10:25, AA is trading at $36.05, up 54 cents (1.5%). The chart for AA looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just two months as long as AA is above $27.50 at April expiration. Alcoa would have to fall by more than 23% before we would start to lose money.

AA hasn't been below $27.50 by more than a few cents in the past year and has shown support around $34 recently. This trade could be risky if the US economy continues to worsen, but even if that happens, this position could be protected by the support the stock might find around $28, where the stock bottomed out in January.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AA, ACH or RTP.

In one of my recent posts on stock pricing, I received a comment from one of our more acerbic readers, who asks some good questions once he simmers down. He wonders why investors have not bid up the share price of Alcoa Inc. (NYSE: AA):

• "How come nobody has the hots for ALCOA? It is very cheap. . . There is mining stock merger-mania yet nobody is buying ALCOA in anticipation of it occurring to ALCOA as well. Are we gonna wait until it is too late?"
  

First of all, I should remind everyone that the price of a stock on any given day is a myth. It is worse than a myth, it is just a fleeting moment in time. I would call it semi-arbitrary most of the time.

Alcoa closed yesterday at $34.06, having a trailing P/E ratio of 11.5. That falls between its 52 week low of $26.69 and its high of $48.77. Also worthy of note, Alcoa has a yield of 2% which is about 10% higher than your average S&P stock. This seems positive.

Perhaps my friend is on to something. Alcoa is off its high considerably and has a lower P/E and higher yield then any of the indices. But its ROE of 15 and ROIC of 11 are all too average, not exceptional -- and these are important considerations. The P/B of 1.89 also seems average but the P/S of 1.03 looks very appealing.

One of our readers commented recently that I had earned his respect because I always tracked and posted my bad picks not just the good picks. I have been told this often but it is not so uncommon in better publications. Barron's weekly and Fortune Magazine both do the same. It's only fair, and should be standard operating procedure. I have not seen James Cramer do it but then he makes thousands of recommendations so how can he track anything?

I also think that in a blog you have the opportunity to establish a dialogue with readers and might even learn something. I have learned plenty from readers and colleagues alike. So having exposed some of my failings in the past month I thought I would look back and and review some of my successful picks.

When I posted Chasing value: Aluminum Corporation of China ADS eleven months ago in March, ACH was $22.98. It closed yesterday at $39.03 for a 70% gain. It had reached a 52-week high of $90.95 in between. We took some money off the table at $88 and are now playing with the 'house money'. This one has worked out great.

Aluminum Corp. of China Ltd. (NYSE: ACH) stock is slumping today as aluminum futures are off by more than 2% as are other industrial metals like copper. Investors may also be locking in their gains after Friday's big positive move. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ACH

The stock has been climbing steadily all year, hitting a one-year high of $76.99 on Friday. This morning, ACH opened at $74.00. So far today the stock has hit a low of $72.78 and a high of $75.33. As of 11:00, ACH is trading at $74.92, down $1.93 (-2.5%). The chart for ACH looks bullish but slightly deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $85 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverages nice returns. For this particular trade, we will make a 6.4% return in 2 weeks as long as ACH is below $85 at October expiration. Chalco would have to rise by more than 33% before we would start to lose money. The stock has never been above $77 and would have to jump by over 14% in less than two weeks to cause a problem.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ACH.

Today Alcoa Inc. (NYSE: AA) announced some restructuring plans that will trim down (SELL) some under-performing consumer packaging and automotive castings divisions. It will be taking some charges to the tune of $845 million as well, and intends to gear up for expansion into higher margin areas. Alcoa also said it raised cash by selling its 7% stake in Chalco, the Aluminum Corp China ADS (NYSE: ACH) and bringing in $2 billion dollars on what was initially a $200 million investment -- "A ten bagger."

It is this latter decision that is not smart, and without further explanation from management I have to question selling a winner. If you look at all of the things that Alcoa did in the last 10 years you will find that the Chalco investment was the smartest, and more importantly, the most profitable, thing it has done. For many years Alcoa stock has been adrift. Since it sold the stock it has only gone up further and as I write these words and look at the price now, ACH is trading up over 5% more to $75.70.

Aluminum Corp of China (NYSE: ACH) volume & volatility spikes on wide price swings. ACH is engaged in bauxite mining, alumina refining and aluminum smelting. ACH is recently up $10.73 to $64.81. ACH closed at $37.04 on 8/16/07. ACH call option volume of 6,490 contracts compares to put volume of 4,671 contracts. ACH September option implied volatility of 88 is above its 26-week average of 47 according to Track Data, suggesting larger price risk.

Open Text (NASDAQ: OTEX) volatility Elevated at 80 into 8/30 EPS & Outlook. OTEX develops, markets, sells, and supports enterprise content management solutions. OTEX is recently down $0.29 to $19.98. OTEX will report EPS on August 30th. Canaccord Adams says: :We maintain our Hold recommendation and U.S. $18 target based on our Discounted Cash Flow analysis." OTEX September option implied volatility of 80 is above its 26-week average of 50 according to Track Data, suggesting larger risk.

Corus (NASDAQ: CORS) volatility elevated on exposure to commercial real estate. CORS is an active commercial real estate lender nationwide, specializing in condominium, hotel, office and apartment loans. CORS had outstanding commercial real estate loans and construction commitments of $8 billion as of 6/30/07. CORS over all option implied volatility of 60 is above its 26-week average of 49 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MOST NOTEWORTHY: General Motors (GM), Aluminum Corp of China (ACH), Greenbrier Cos (GBX) and Monsanto (MON) were today's noteworthy downgrades:

• Bear Stearns cut General Motors (NYSE: GM) to Peer Perform from Outperform based on valuation and growing fundamental headwinds.

• HSBC downgraded Aluminum Corp of China (NYSE: ACH) to Underweight from Neutral as they believe prices of lightweight metal have peaked.

• Greenbrier Cos (NYSE: GBX) was cut at Bear Stearns to Peer Perform from Outperform on valuation.

• Matrix USA downgraded Monsanto (NYSE: MON) to Buy from Strong Buy on valuation...

OTHER DOWNGRADES:

• Sandler cut Western Alliance Bancorporation (NYSE: WAL) to Hold from Buy.

• UBS cut Arris Group (NASDAQ: ARRS) to Neutral from Buy.

• AG Edwards downgraded Hilton Hotels (NYSE: HLT) to Sell from Buy. Gabelli cut Hilton Hotels to Hold from Buy.
  

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

Mark Skousen, editor of Forecasts & Strategies and host of the July 4th investor think tank FreedomFest, chose Aluminum Corp. of China (NYSE: ACH) as his favorite stock for 2007, which rose 45% as of 6/1/07. Here is his original recommendation on ACH and his current opinion on the stock.

For his new top pick, the advisor recommends Volcano Corp. (NASDAQ: VOLC). The advisor explains, "This is a medical technology company that is currently experiencing blockbuster revenue growth.

"Volcano provides a unique service in the burgeoning health care industry: an intravascular ultrasound and functional measurement product that visualizes the heart, brain, arteries, and other parts of the body to diagnose and treat heart disease, strokes, and other ailments.

"According to scientists and technicians worldwide, Volcano has the far superior technology than other competitors. I suspect that means a takeover in the future. Sales, which have raced past $100 million over the last twelve months, are growing at 48% per quarter. Earnings, too, have blown past analysts' estimates.

"I think this trend will continue for this stock. It could even become a buyout candidate. The stock has already started to move up. I recommend you buy Volcano now, before it erupts."

See all 20 stocks the advisors picked for the second half of 2007.

On November 21 of this past year, I blogged about Aluminum Corp of China (ADR) (NYSE: ACH), the monster-sized aluminum company -- the largest in all of China.

I wrote that ACH's size, and its terrific dividend, gave me a good level of comfort that this was a key way to play China. I predicted that the stock would rise from its price of $19 to as high as $30 in the next 12 months. Well, ACH stalled out for a while at $22, and I can't tell you how many emails I got from people belly aching! But I had said give it 12 months, folks! Less than seven months later, ACH is now trading at $38.75, exceeding both my time expectation and my price expectation.

If you got in when I first recommended and hung on, good for you! But if you didn't, there may still be a
tiny bit of room for growth left in the share price. But, hurry, as the secret is out. Goldman Sachs just raised its
target on the stock yesterday and the stock rose 9% on the day. Year-to-date demand is at 40% up from 21% in 2006, and while ACH shows little sign of slowing, it probably will, partially because it is forced to. Analysts are predicting this growth to peak in 2007, due to smelting power tariffs rising in China as well as government caps on controlling the expansion of the aluminum industry.

If you still have this stock, or if you buy it now, I'd also keep a close eye on this price, and get ready to get out at the right time.

Type of stock: The largest aluminum company in China and one of the largest in the world, this one is showing phenomenal growth and still growing, but could peak by year-end.

Price target: If you bought at $19 when I recommended ACH in November, you've made a pretty penny. I rightly predicted we'd see it pass $30 within 12 months, and it overshot my predictions. Now trading at $38.75, I still think there is a bit more to squeeze from this stock. Keep your eye on it closely. If it starts falling, I'd consider getting out while the getting's good.

Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.