The Zacks Analyst Blog Highlights: Alcoa, Tesla Motors, Aluminum Corporation of China, RioTinto and Goldman Sachs

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Jun 26, 2012, 09:30 ET

CHICAGO, June 26, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Alcoa Inc. (NYSE:AA), Tesla Motors (Nasdaq:TSLA), Aluminum Corporation of China Limited (NYSE:ACH), RioTinto plc. (NYSE:RIO) and The Goldman Sachs Group Inc. (NYSE:GS).

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Here are highlights from Monday's Analyst Blog:

Alcoa Appreciates Tesla's Model S

Alcoa Inc. (NYSE:AA), one of the members of the Aluminum Transportation Group (ATG), applauded Tesla Motors (Nasdaq:TSLA) on the launch of its Model S electric vehicle. The Model S is an electronic vehicle that intensively uses aluminum, which reduces weight and produces zero emissions while offering rapid acceleration and nimble performance.

The ATG educates vehicle manufacturers about the benefits of aluminum in transportation applications and increase its usage in transportation through research and development activities. The ATG acts as a central resource for the automotive and commercial vehicle industries on aluminum issues. There are increasing concerns about automotive safety and fuel economy and it is where aluminum plays an important role in the design and engineering of cars and light trucks.

As per Tesla Motors, aluminum will reduce the overall weight of Model S to help maximize efficiency and range. The structure of the model is designed in such a way that it not only provides protection to the passengers, but also enables smooth handling of the car. Aluminum forms an integral aspect of the car as almost every parts of the car that are visible are made up of aluminum.

Tesla intends to increase the production of Model S throughout 2012 and plans to deliver 5,000 vehicles by the year-end. Reservations for the model currently exceed 10,000 units.

Pennsylvania-based Alcoa Inc. is among the world's leading producers of primary and fabricated aluminum and alumina. The company is engaged in mining, refining, smelting, fabricating and recycling of aluminum.

A few months back, Alcoa released its first-quarter 2012 results. The company reported earnings of 9 cents per share in the quarter, compared with earnings of 27 cents in the first quarter of 2011. Excluding restructuring charges and other items, Alcoa's profit came in at 10 cents per share, beating the Zacks Consensus Estimate of a loss of 4 cents but missing the year ago profit of 28 cents. The impressive results were attributable to higher production and volumes, and improved market conditions.

Quarterly revenues inched up 0.3% sequentially to $6,006 million and edged up 0.8% over the prior-year quarter. It surpassed the Zacks Consensus Estimate of $5,735 million. The increase in revenues was driven by strong results in the company's Global Rolled Products and Engineered Products and Solutions businesses.

Alcoa competes with Aluminum Corporation of China Limited (NYSE:ACH) and RioTinto plc. (NYSE:RIO). Currently, the stock maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We have a long-term Neutral recommendation on the shares of Alcoa.

Legal Mess for Goldman Continues

According to Reuters, the federal judge in New York rescinded the bid filed by The Goldman Sachs Group Inc. (NYSE:GS) regarding the dismissal of a lawsuit charged against the bank, accusing it of selling risky debts via misleading statements. The U.S. District Judge, Paul Crotty, has ordered the plaintiffs to pursue the proceedings over their claims against Goldman relating to the offering of collateralized debt obligations (CDOs) stating "Goldman's arguments in this respect are Orwellian".

CDOs typically repackage bonds and other assets into new securities. These are not traded on a public exchange, allowing firms like Goldman to generate fees through brokering deals between buyers and sellers. However, CDOs have performed miserably since these were invested in securities comprising sub-prime mortgages, which are known to have larger-than-average risk of defaulting in the market. Eventually, the market downturn ruined the investment banker's expectations, resulting in huge losses for the common investors.

The aforesaid lawsuit has been filed by the shareholders of the company in Manhattan federal court. They claimed that Goldman concealed the fact of betting against its clients by taking short positions in four CDO transactions, which were sold to the investors. Institutional investors, such as the Arkansas Teacher Retirement System, the Plumbers and Pipefitters National Pension Fund and the West Virginia Investment Management Board are also among the plaintiffs.

All these plaintiffs alleged that Goldman's act of concealing facts at the time of entering such transactions led to inflated stock prices. Therefore, investors faced losses when the lawsuits were filed against Goldman relating to these transactions, which led to a fall in its share price.

The complaints claimed that Goldman deceptively sold the sub-prime mortgage-linked securities that gradually failed. In addition to that, it misrepresented the value of instruments by providing materially misleading statements.

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