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Watch For Alcoa Takeover Talk

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Alcoa services a wide range of industries, not least of which the still growing Aerospace/Defense industry.

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"We can't wait, we can't wait for tomorrow!"

If you were not born in the 1960's that may be a bit cryptic: how about another hint?

"The Steelers handled the ball no less than six times on a flee flicker that brings victory to Pittsburgh on the game's final play," Bradshaw to Bennie Cunningham in sudden death overtime to beat the Browns 15-9 on Week 4 of the 1978 campaign. A year in which, for all you Steeler fans, the team would post a 14-2 record and go on to beat the Dallas Cowboys 35-31 in Super Bowl XIII.

Have I lost you, yet? At the end of NFL games back in the day, usually at the two-minute warning, the broadcast of the local game would cut to "Alcoa Presents: Fantastic Finishes." As a huge Giants fan, Fantastic Finishes was just about the only thing to look forward to by the fourth quarter of any of their games. The G-Men were, in a word, awful. But, as always, I digress.

Alcoa (AA) is due to "unofficially" kick off earnings season when it reports its third quarter after the bell on October 9. Fueled by the global growth story and takeover speculation, Alcoa rallied about 71% from January until July before finally fizzling out after reporting less than stellar second quarter earnings on July 9. And fizzle it did, trading down from the 52-week high of $48.77 to around $32 in one month's time.

But if you still believe in the global growth story, then not a lot has changed for Alcoa. As, according to its website, "the world's leading producer and manager of primary aluminum, fabricated aluminum and alumina facilities", Alcoa services a wide range of industries, not least of which the still growing Aerospace/Defense industry.

As credit concerns put a damper on the M&A chatter, things have been quiet on the takeover front with Alcoa. But with an enterprise value of about $41 bln, Alcoa could be a rare $50 bln+ deal just waiting to happen. Although BHP Billiton (BHP) will publicly deny it, Alcoa would be an incredible addition to the world's largest diversified resources company. And with a market cap of about $227 bln, BHP may be one of the few companies that could make such an acquisition. A Financial Times article on September 30th, however, claimed that BHP may not be interested in Alcoa. But I remain a strong believer in "where there's smoke, there's fire."

At 11.50 times forward earnings, Alcoa is cheaper then most of its peers. The froth from earlier this year is almost entirely gone from the stock price and it may be one of those names that has fallen off everyone's radar screen. I'm not sure about earnings next week as they are liable to make numbers but give tepid guidance on a slowing North America. But I firmly believe the real story is the potential for a deal and for that I think that Alcoa is worth a long look. Who knows, maybe it will provide us with a 2007 fourth quarter Fantastic Finish!
No positions in stocks mentioned.

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