The following analysis is provided by @Evo_Consultants a new and interesting addition to my twitter timeline.
Earlier today they asked me to throw out a symbol for a “quick analysis” as they had some time on their hands on this casual Friday. I had no idea what to expect and quite frankly I was impressed with the result. I chose CENX for whatever reason.
NASDAQ:CENX Century Aluminum Company
Allright, this is the first “quick research cycle” equity analysis we have done “by request” vis a vis the wonderful info-streaming network known as Twitter. A thumbs up and salute to @stockcats for providing NASDAQ:CENX Century Aluminum. Note, we may make a tradition out of “casual caffeine fueled Friday afternoon equity research by request”.
Firstly some notes about the aluminum industry from the commodity / production perspective. According to Evolution 4.0 quick-scan research, aluminum demand, despite some reported numbers, continues to grow quite steadily. Reason being? There are several. First of which: The increased amount of products / manufactures that are using aluminum for an aesthetic appeal rather than practicality of materials. A great example would be the myriad of consumer electronic devices, ironically one of which we are using to type out this article. Our Corsair K65 mechanical keyboard features a deck and chassis made out of aircraft grade aluminum. Why? Well quite honestly it looks great, feels sturdy, and has a certain unspoken “quality feel” to it. Additionally, many mid to high end laptops, audio devices, mobile devices, etc are being made from aluminum and plasti-aluminum composites for the exact same reason. Aluminum is no longer “the stuff cans are made out of”. Rather, aluminum from a consumer perspective actually represents some level of “industrial overbuilt” quality. This is likely a result of the 80’s, 90’s and early 2000’s “plastic-mania” manufacturing trend. Oh by the way, it doesn’t actually cost these manufactures much more to produce said parts, chassis, cases out of aluminum, it just “looks” like it does. As certified tech-snobs, we are not complaining… we do like metal-form designed hardware.
From a heavy industry (a more common usage) for aluminum, one thing that we noticed in our quick scan research is the connection between electric vehicles and aluminum as an automobile manufacturing metal. High end sports / performance cars are no stranger to aluminum chassis, and other components. Why? Because lighter is faster. More specifically lighter AND stronger is faster. Aluminum has represented a great way to mill out strong but light parts for some consumer cars, and nearly all mid to high end performance and “super” cars. Those familiar with automobiles will realize the only place to go from top grade aluminum is the carbon fiber, carbo-tanium, and similar exotic materials that often come with a mind-numbing manufacturing price tag. When speaking in terms of electric vehicles, the holy grail of course is battery longevity. As that technology continues to develop, the “other side” of the equation is “lightness”. In other words getting this most out of available electric vehicle technology (mileage) by using lightweight materials for production of parts that might normally be made out of steel or steel-composite. Evolution forecasts as the “electric vehicle for the masses” race heats up, so will the demand for aluminum (specifically woven aluminum composites similar to those used on commercial aircraft).
Finally, we speak of the robotics industry. Admittedly, Evolution Consulting has been doing tremendous research on the future (the next ten years) for robotics technology and to say the future is “bright for the bots” would be a tremendous understatement. As machines continue to replace humans at various tasks ranging from menial to ultra-complex, the need for more and more advanced robots increases (note that we do include UAV/Drone technology in that statement). The “dark horse” we forecast in driving the demand for aluminum is going to be in the robotics sector. With applications ranging from “menial job” replacement, all the way to ultra-advanced, purpose built machines, the sheer number of designs and research phase (and ultimately production phase) could again, represent quite a driver for the aluminum demand side. Not surprisingly the same thing that makes aluminum appealing to the automotive industry (light and strong) also makes aluminum ideal for designing all varieties of robotic creations. The price point, as compared to carbon fiber, carbotanium, titanium and other metals also has tremendous appeal. For those familiar with manufacturing processes, aluminum is one of the easiest materials to work with (including the ubiquitous welding processes). A TIG welder can be bought at Harbor Freight for a few hundred bucks, an electron beam welder (such as Grumman used to assemble the F-14 Tomcat’s titanium airframe) is “noticeably more expensive” and requires a purpose built building.
What does this mean for companies such as $CENX. Based upon our quick comparisons to others in the sector including Freeport Mac, Alcoa, and other giants. Firstly, CENX shares did tumble noticeably based upon the question-ability of “ability to expand” and “excessive costs” in production. However, as we so often say, a rising tide does float all boats. Industry / sector trends, in addition to what Evolution 4.0 has discovered to be some cost-cutting efforts will likely see shares back up at the 9.00 dollar range within 90-120 days. This would be an example of something we have come to call “short attention span theater” in so far as investor sentiment. Temporary news stories pertaining to fundamental economic principles such as EPS / PE, etc are often forgotten, with investors choosing to “trade the news” rather than anything else. Additionally, Evolution 4.0 forecasts decreased losses in the next quarter which should provide the necessary volume and momentum up and through the 9.00-10.00 price per share target. Look for US based companies (CENX is Chicago Based) to trade up (again on news) as the “nationalist” Trump-like rhetoric continues with investors. Remember, trading “what others are thinking” is just as good as trading on fundamentals (prior to the GER/Currency Implosion).
We forecast some of the trends that we mentioned above, particularly aluminum as a key component in robotics as well as “the future of electric vehicles” to be fairly mainstream sooner rather than later. Remembering of course that in a market seeking guidance absent any fundamentals, that means good news for companies such as CENX. For those that are already long CENX we would say “hold and wait” (oddly reiterating something Deutsche bank had stated). As for those considering getting long CENX, as our chart indicates, a 7.00 buy in would be most pragmatic (6.80 for those really wanting to push the envelope) – (based upon a small market pull back within the next 4-5 days)… mostly earnings taking). In other words, go for a 3 dollar per share move then re-evaluate news / information after 90-120 days. We should also point out that like our NYSE:NGD (New Gold Inc) recco, the relatively low per share price means that Century is a “cheap” stock. Therefore, lots of retail investor appeal as well as institutional appeal looking for a quick and easy diversified position.
Additional research note: The only potential downside / drag (pardon the aviation pun) on the aluminum industry at present is slower / lower than expected commercial aircraft orders (forward looking) from companies such as Airbus, Boeing, among others. Despite increasing delivery rate, new orders do seem to be coming in slower / lower than expected, though some Chinese airlines seem to be bridging that gap in terms of aircraft demand.
Courtesy of http://www.evolutionconsulting.world/
Interesting stuff eh?
The chart looks constructive but I hadn’t dug into any fundamentals or even considered some of the angles they came up with.
I thought I would share it here with their permission and for your reading pleasure.
Definitely worth watching.