Heard Off the Street: Alcoa charges to top spot on regional stock index

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The year was 1999 and the top-performing stock among the 30 members of the Dow Jones Industrials was Alcoa. Shares of the Pittsburgh aluminum producer leaped 126 percent that year, finishing at $83.

Fifteen years later, Alcoa [ticker: AA] is no longer part of the stock market’‍s most popular barometer. But prospects were looking up enough in the first half for one of Pittsburgh’‍s original industrials to make it the best performing stock in the Post-Gazette/Bloomberg index of regional stocks. The index is composed of companies that are based here or that have significant operations in the region.

Alcoa shares rose 39 percent, easily outpacing Allegheny Technologies [ATI], another metals producer, and Ampco-Pittsburgh [AP], which makes the rolls the metal industry uses to flatten their sheet products.

Of the 57 companies in the index, 32 advanced 1 percent or more, including 21 that reaped double-digit gains. There were 21 losers, paced by Education Management [EDMC], the Downtown concern, whose largest shareholder is Goldman Sachs, is having a hard time living up to its reputation as a for-profit educator. It generated losses of $476 million in the first nine months of its current fiscal year after losing nearly $1.8 billion over the previous two years. The company is plagued by the trifecta of falling enrollment, government investigations and lawsuits.

Education Management was one of 14 regional stocks to register double-digit declines during the first half.

Four companies in the regional index rose or fell less than 1 percent.

Alcoa shares closed the first half at $14.80. Even adjusting for a 2-for-1 split in 2000, they are trading well below where they were when they topped the Dow in 1999.

Currently, the aluminum producer is benefiting from in-roads into the automotive market, long a bastion of the steel industry. Stricter fuel economy standards prompted auto makers to consider lighter materials.

Alcoa obliged by coming up with ways to make aluminum sheet more feasible to use in mass market vehicles, not just the high-end luxury models that marked the industry’‍s first ventures into the automotive market. This year, Ford introduced an aluminum-intensive version of its popular F-150 pickup truck and similar announcements from its competitors are expected to follow. Research firm Ducker Worldwide predicts that by next year automotive aluminum consumption will have increased 28 percent from 2012 levels.

Alcoa shares also got a lift from the announcement that the company will pay $2.85 billion for Firth Rixson, a United Kingdom company that makes jet engine components. The purchase, expected to be completed by the end of the year, will give Alcoa a wider footprint in the growing aerospace market.

As usual, earnings prospects were a key driver in stock performance. That’‍s why Mylan [MYL] turned in the the fifth best performance. Shares of the Cecil generic drug maker climbed 20 percent in the first half.

“It’‍s earnings growth. They’‍re just bringing on new products consistently,” said Ronald Heakins of OakTree Investment Advisors in Shadyside.

Mr. Heakins also expects Mylan will benefit from the Affordable Care Act, which provides insurance coverage to more people and is expected to shift more drug purchasers to generics.

The eighth best performer, EQT [EQT], benefited from forecasts that the natural gas producer’‍s 2014 earnings will be double what they were last year, Mr. Heakins said.

Consol Energy [CNX], the fourth best-performer, is in the midst of a transformation. The Cecil-based energy concern has sold off more than half of its coal mines, unloaded its barge business, and reduced its workforce by 30 percent. The measures are intended to make Consol primarily an exploration-and-production company. Investors are backing the makeover enough to send Consol shares up nearly 21 percent in the first half.

Disappointing profits landed companies like American Eagle Outfitters [AEO] and Dick’‍s Sporting Goods [DKS] on the wrong side of the ledger.

Shares of the South Side teen clothing retailer tumbled 21 percent in the first half. After a string of disenchanting quarterly earnings statements last year, American Eagle posted what one wag termed “underwhelming” first quarter results as it was forced to mark down prices to unload inventory. Chairman Jay Schottenstein, who took over as interim CEO in January following the departure of CEO Robert Hanson, is forecasting break-even second quarter numbers, excluding potential impairment and restructuring charges.

Dick’‍s found out that golf is a lot harder game than it looks. Its abysmal first quarter numbers were tied to a $34 million miss of its golf sales target as well as weak support from the hunting crowd. Chairman, CEO and low handicapper Edward Stack told analysts that instead of embracing the game-changing technology new, higher-price clubs provide, golfers are opting for last year’‍s technology at deeply discounted prices.

Len Boselovic: 412-263-1941 or lboselovic@post-gazette.com


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