Get Exposed To Global Economic Growth With Aluminum (GLD, JJU, AA, JJC, EWZ, EPI, FXI)

Jonathan Yates:  Emerging market investors should always keep an eye on the direction of securities in the aluminum sector. Equities such as Alcoa (NYSE:AA) and exchange-traded funds such as iPath DJ-UBS Aluminum TR Sub-Idx ETN (NYSEArca:JJU) may be well off their year highs – but they’re on the rebound.

Like the exchange-traded note for copper, iPath DJ-UBS Copper TR Sub-Idx (NYSEArca:JJC), Alcoa and iPath DJ-UBS Aluminum TR Sub-Idx ETN offer insight into the strength of the global economy.

While no longer the world’s biggest aluminum producer, Alcoa is a play on worldwide demand.  As detailed previous articles on, the company has operations in many emerging market nations.

Unlike gold (NYSEArca:GLD), aluminum and copper are critical industrial materials. That is why the trajectory of the JJC and the JJU on the chart below demonstrates such a strong correlation between the two commodities.

Recent reports of slower growth in emerging market nations such as China (NYSEArca:FXI), India (NYSEArca:EPI) and Brazil (NYSEArca:EWZ) have sent both aluminum and copper to the downside — and declining growth for the euro zone is not helping.

Thanks to the most recent downward move, Alcoa has a high short float of 7.22%.  A short float of 5% is considered to be troubling for a company.

Alcoa certainly looks more promising in recent trading, however, as it is up 8.87% for the last week.  There is much to like on the balance sheet and income statement: the forward-price-to-earnings ratio is 10.18.  Earnings-per-share growth this year is 112.94%.  Over the next year, earnings-per-share growth is estimated to be 81.13%.  The price-to-sales ratio is 0.44.  The price-to-book ratio is 0.79.

But while Alcoa is currently trading under $10.30 a share, the mean analyst target price over the next year is $11.58.

Institutions own almost 60% of AA shares, which is bullish.  When growth returns to the global economy, the share price of Alcoa will rise.

For the last week, the iPath DJ-UBS Aluminum TR Sub-Idx has increased by 1.70%.

The iPath DJ-UBS Copper TR Sub-Idx has appreciated 4.35% over the same period.

Written By Jonathan Yates From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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