Aluminum Prices: The Best Investment for March
By Ann Sosnowski
In this article
Aluminum may be the best short-term and long-term investments to make right now.
Aluminum spot prices could surpass its high from May 2006, touching $1.50 per pound this year.
Most aluminum companies look set to profit from low supply and high prices… as they did last year.
According to this year's Stock Trader's Almanac, the only seasonal investment worth making in the last third of March, and holding until the middle of June is on the Morgan Stanley Health Care Provider index (RXH:AMEX).
The Almanac states that on a regular basis, this investment has returned average gains of 8.4% in the last five years (including 2006) and 13.9% in the last 10 years.
Of course, I was tempted to investigate… and I was not impressed.
A quick analysis of the RXH's 24-month performance shows the following:
March 17, 2004 to June 15, 2004: A measly gain of 0.64%.
March 15, 2005 to June 15, 2005: An almost impressive 16.50%.
March 15, 2006 to June 15, 2006: A loss of 5.56%.
Overall, for the last three years (which I like using as a better comparison than five and 10- year performance), the RXH has actually only made investors gains, on average, of 3.86%.
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Excuse me if I don't applaud this amazing investment discovery…
Instead, I went on the hunt for a true investment of quality that you can make right now for the extremely short term and the extremely long term. And I found it in aluminum…
Aluminum Prices: A Steady Rise Tops Last Year's Prices
Here is a six-month chart of spot prices on aluminum, courtesy of kitcometals.com:
As you can see, aluminum prices spiked in mid-May past $1.42 per pound, due to a drop in supply.
Following that, there was a swift price correction, followed by a rising bump, and then a slow flat run…
Since September 2006, aluminum has traded in a very cyclical manner, abiding extremely well to both its top and bottom trendlines.
Since September, there have been three major rising cycles followed by falling legs.
Through my three-cycle analysis, I found the following information:
An average rising leg on aluminum, under current conditions, lasts approximately a month to a month and a half.
An average rising leg adds almost 15 cents to the price of aluminum.
The average gain per leg is 12.79%.
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Considering that the most recent rising leg in aluminum just started, we should see a price of $1.40 per pound in the next month…
And if the cycle continues, you'd see a drop to $1.29 on the downleg of the cycle, according to an average drop during this trend of 7.87%…
If the trend holds, we'll see a break above the one-year high of aluminum at $1.51 per share by August 2007.
Aluminum Prices: The Stocks to Buy Now
What are some good companies you can use to play the rising cost of aluminum?
Just take a look at some of the companies that really profited off that pop in May 2006:
Alcan Inc. (AL:NYSE) is a Canadian company that makes aluminum products. Its stock is only trading for a little more than $50 per share… and it hit a high of almost $60 per share in May of 2006.
Alcoa Inc. (AA:NYSE) is a producer and seller of aluminum products. It hit a high of almost $40 per share in May 2006. Currently, it's trading low at $34 per share on top of a strong rising trend and a gap to fill in.
And finally, Century Aluminum Co. (CENX:NASDAQ) hit a high of $56.40 in May 2006, and is currently low priced at $44.86 per share, with a long-term rising trend in its future.
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Related Sources
Aluminum Prices: View different price charts on spot aluminum. - kitcometals.com
Aluminum Prices: Check out a list of aluminum companies. - via Yahoo!Finance
Aluminum Prices: The trade association for aluminum recyclers and producers.