The Chinese government released trade data that portrays a $7.3 billion deficit. Is that believable or just convenient amid the international pressure to raise the value of their currency? We can hardly believe what comes out of Washington, so data coming out of China has to be quite suspect.

I'm sure they retained qualified independent auditors to ascertain the validity of the figures -- yeah right ...

Alcoa (AA) is the world leader in the production and management of primary aluminum, fabricated aluminum and alumina. The company has a significant presence in all segments of the aluminum industry and operates in more than 31 countries worldwide. The company competes with other international metals and mining giants like Rusal, Rio Tinto (RTP), BHP Billiton (BHP) and Chalco (ACH).

The company recently released its Q4 2010 earnings, and we have updated our price estimate to $17.68 based on a reduction in total debt, an increase in revenues from better product pricing and better cash management leading to cost savings.

Primary Metals the Biggest Driver of Value

The primary metals division produces primary aluminum used by Alcoa's fabricating businesses, and it is sold to external customers, aluminum traders and on commodity markets. While our analysis shows that it was Alcoa's most valuable division in terms of contributor to shareholder's income, we have further increased our estimates for the overall value of the division going forward.

Aluminum prices have increased over the last two years since their sudden decline from peak prices in mid-2008. The 13% increase in global aluminum prices in 2010 has been directly responsible for the observed increase in the division's revenue.

We capture the impact of the aluminum prices on Alcoa's revenues in our forecast for the yearly average price of primary metals.

With demand for aluminum predicted to increase from 10-15% in developing countries like China, South Korea, Thailand and India, Alcoa's estimate of a 12% growth rate for 2011 is well justified. We believe that the demand growth will increase Alcoa's revenue per ton of aluminum sold to as high as $3,400 in coming years from its current value of about $2,500.

See the complete $17.68 Trefis Price estimate for Alcoa's stock.

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"Much of China's continued economic growth is going to be fueled by rather mundane stuff, like aluminum, which is why we think it is time to consider Aluminum Corp. of China (ACH)," says China stock expert Keith Fitz-Gerald.

The editor of The New China Trader explains, "Based in Beijing, Aluminum Corp. -- also known as CHALCO -- is the world's second-largest alumina producer.

"According to Pittsburgh-based aluminum giant Alcoa, Chinese consumption of aluminum is expected to grow by 21% in 2010. Growth in the rest of world is only expected to increase by 6% over the same time.

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."

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.

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.