At $8, when no one had faith in Alcoa (AA), CEO Klaus Kleinfeld and I spoke about how the company was on the cusp of some huge, positive changes. There was the expanded use for aluminum-based alloys in airplanes of all shapes and sizes. There was the potential success of the light weighting of the F-150, the most popular truck ever built. There was the possibility of aluminum no longer in glut and the financial players not in control of the commodity any more, keeping it down below real market prices. There was the chance for Alcoa to move down the cost curve by closing factories that were expensive and expanding ones that weren't.
It was all right there for the taking. But the downgrades were running thick and furious. Some of them seemed like they were ginned up, generating some alibi for negativity, any excuse just to distance themselves from the company. These downgrades tended to be done in a vacuum, without new research or even a check in with the company. I am not kidding; that's how shoddy some were.
Many in the analyst community had simply given up, both on the mineral and the company, as if Alcoa were Cliffs Natural (CLV) and it made iron ore, or Arch Coal (ACI) and it mined coal, both of which are in severe and worsening glut or in outright secular decline. Others fretted about the balance sheet, even as productivity kept improving and costs were disappearing right before their eyes. Still others thought that CEO Klaus Kleinfeld was making way too big a deal of aluminum's light-weight strength and would never be able to win big contracts to remake the pick-up truck industry.
The undercurrent: light-weighting's not a needle mover; it is a distraction from the core decline of the company's business and the inability to close poorly performing plants in countries where you simply can't lay off people anymore.
And almost everyone was wrong.
The company took incredibly tough action, shutting high-cost plants in union-dominated regions like Italy, Spain, Australia and northern U.S. Light-weighting took off out of nowhere, and now the company's got so much business from Ford (F) for its new aluminum-built F-150s that it had to open another factory to meet demand from Ford and some other manufacturers that are on the edge of light-weighting their vehicles. The company had the financial wherewithal to make an important acquisition that boosted exposure to the best long-term theme out there: aerospace.
And now it is all paying off in the higher sales, higher margins and higher profits you saw in the just-announced quarter. It is incredible to me that when this stock was at $8, it had almost no friends, even as there was no reason to doubt the plan. The analysts just stopped listening. They stopped believing. Just when it was all coming to fruition, they abandoned it and Kleinfeld, the man who had pulled it all off.
I am seeing a degree of this same kind of behavior across the street right now on anything commodity or industrial. Analysts are running from all, the good and the bad. They want to distance themselves ahead of the coming quarters. They want to be out in front in their negativity, like they were with Alcoa.
I don't know how horrendous this earnings season will be. But I do know that those who are blind to turns like there were in Alcoa will be blind to the next one, and the ones after that. The best values right now aren't in the consumer packaged goods stories or the utilities or highest-growth tech. They are in the next Alcoas that are reinventing themselves, taking self-help and getting the job done, sight unseen from the naysayers; all done, by the way, with a backdrop of a weakening Europe, China and Latin America.
So, keep joining the herd. Sell all of the oil and oil service and mineral stocks. Dump any industrial tinged with auto or construction or Europe or Asia.
But remember some of these companies look like Alcoa at $8 and are run by CEOs who know what they are doing. That's where the real bargains are. And they can be found, because they are right in front of our noses, obscured by a beaten and scared analyst community that now regularly kowtows to their fears and those generated by the high-commission trading hedge funds that sow the seeds of cynical downgrades at exactly the wrong time.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.