Forget One-Time Charges — Alcoa Is Your Best Stock for 2012

Aluminum stock Alcoa (NYSE: AA ) announced this week that it will be taking a
significant one-time charge from moves to cut smelting capacity. In the short
term, this might seem like trouble with Alcoa stock down more than 2% at the
open Friday but buy-and-hold investors might want to buy in on this dip. AA
stock has seen better days, to be sure. Shares are off about 70% from early 2008
and down about 40% in the past year. But the fact is Alcoa fundamentals are
improving, in large part because of restructuring moves like this one that
provide short-term pain but make the aluminum giant much more competitive in the
long run. Alcoa remains my pick for one of the 10 best investments to buy and
hold for all of 2012 . Here are the specifics of the recent charges: Alcoa will
write off 15 to 16 cents per share in its fourth-quarter results thanks to moves
that cut about 12% of its global smelting capacity. It will permanently close a
smelter in Tennessee, along with two of six idled potlines at a Texas facility.
Further curtailments will be announced "in the near future," the company
said. Why would cutting back capacity be a good thing? Well, for one, demand is
weaker after the financial crisis. Durable goods and construction products using
aluminum just aren't selling as fast as they used to. But another important
reason is that aluminum prices are very soft, off about 27% from peak levels in
2011, and slashing supply will provide a floor for the price of Alcoa's
aluminum that it provides to manufacturers. True, Alcoa isn't sexy. It's a
stodgy Dow Jones component that is hardly a 21st century company like Apple
(NASDAQ: AAPL ). And true, the headwinds Alcoa faces are obvious and pretty
significant. But Wall Street has unfairly battered this industrial giant, and
that creates a big opportunity for buy-and-hold investors. Alcoa is a bargain.
AA stock hasn't seen the $9 level since spring 2009. Do you really have less
confidence in the economy than you did almost three years ago, when the sting of
the financial crisis was fresh in all our minds? Alcoa has a forward P/E of
about 10 right now and a price/book of less than 0.7, so the depressed pricing
seems to be an overreaction. Fundamentally, Alcoa is looking better than you
might think, too. Alcoa has seen year-over-year profit increases in each of the
last eight quarters. It also has seen revenue go up year-over-year for seven
straight quarters. There's also a modest 1.3% dividend to sweeten the pot,
with the potential of an increase in 2012. That payment has been stagnant since
March 2009, and stability in the company might mean a decent uptick in the
quarterly payday for shareholders, since a dividend increase is long overdue. As
I said, Alcoa is my selection for the Best Stock of 2012 . You can read my
complete recommendation on Alcoa here. Full disclosure: In the spirit of taking
my own advice, I purchased 540 shares of AA stock at $8.95 on Dec. 14. I hope
that adds a bit of realism to my commentary on the stock across 2012! Jeff
Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com
, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on
Facebook . Jeff Reeves holds a position in Alcoa, but no other publicly traded
stocks.