CSInvestor Quick Pick: Aluminum Corporation of China Limited (ACH)

China is still the place to be.
Usually, a stock that’s 77% below it’s 52 week high is very worrisome, but ACH is an extremely well run company, poised to become a major player in the Chinese metal market.

Sure, demand for aluminum has been slowly declining in the US, but as recently as April, forecasters were saying global demand will rise 8.5% in 2008. That’s well above the average 6% growth rate for the previous 10-year period. Global demand is still nothing compared to the 24% rise in China.

Producing aluminum does take massive amounts of energy, that’s part of the reason why ACH stock has been declining. Aluminum costs much more than steel, and yet, aluminum is vastly more plentiful on earth than steel is, it’s actually the most abundant metal. So why does it cost so much more? The refinement method. With iron, you just take the ore out of the ground, smelt it and separate the metal from the junk. Aluminum, on the other hand, is generally found in bauxite, which needs to be processed using huge amounts of electricity to extract the free aluminum.

But with 24% growth coming from the Chinese market, ACH is still in a great spot. They don’t need to ship the metal across the ocean like Vale or Alcoa. They’re already there, smack dab in the middle of the greatest economic boom the world has ever seen.

So they’re a great company, with a very low P/E, earnings of $9.3 per share, and great leadership. Plus crude prices are starting to fall back down, which will impact their high production costs. This looks like the perfect entry point for a nice long term stock.