Alcoa offers an inexpensive play on an underappreciated commodity.

Alcoa may not be what it once was -- a global industrial behemoth that was a member of the Dow Jones Industrial Average for more than 50 years, until 2013. But there is plenty of appeal for investors in a smaller Alcoa following the spinoff of its aluminum products business in 2016.

Here's why. Alcoa is the leading North American-based aluminum company. It has major operations in Australia, Brazil, and Canada, and a smaller footprint in the U.S., where it operates two of the country's four remaining aluminum smelters.

Alcoa has a presence in all stages of aluminum production. That involves the mining of bauxite, the purification of that ore into the intermediate compound of alumina, and the smelting of alumina to make aluminum using an electricity-intensive process. That method was developed by Alcoa in the late-19th century and remains little changed today.

The company's prospects are promising.

Alcoa produces about 3% of the world's aluminum, and is poised to increase its output by more than 30% to more than three million metric tons annually. That's thanks to its $4 billion purchase of AliGroup, a division of Australia's South32, which is due to close by the middle of 2027.

Alcoa's volatile shares look appealing. At around $38, they are trading just above their 52-week low, and for less than half their high of $85 in June. Alcoa trades for just six times projected 2026 earnings of $6.81 a share and seven times estimated 2027 profits of $5.50 a share.

That's low relative to mining peers, which generally fetch over 10 times earnings, and a third the S&P 500 multiple. Plus, the company produced ample free cash flow of about $600 million in the first nine months of 2026.

"Alcoa is a best-in-class integrated producer in an attractive commodity," says Steve Galbraith, managing member of Kindred Capital in Darien, Conn. He says the stock price drop since June is excessive, given that aluminum prices are down about 15% from their June high to $3,100 per metric ton, or $1.40 a pound. That means that Alcoa remains solidly profitable, given production costs of about $2,500 per ton.

"There has been no major downgrade in earnings estimates," Galbraith adds, "no crazy decline in the forward curve for aluminum prices and [global production] capacity has been relatively restrained." He believes the stock has upside of 50% from here.

In the metals space, copper has generated more excitement than aluminum because of tight market conditions, limited new supply, and electrification demand. The case for aluminum also looks good.

"There is growing demand driven by a number of megatrends like electrification and the energy transition, and strong packaging demand. Supply is constrained," Alcoa CEO William Oplinger told Barron's in an interview.

The metal's combination of strength and low weight make it ideal for aerospace, transportation, packaging, and other uses.

So, why is Alcoa trading so cheaply? Several reasons.

Investors are taking a wait-and-see approach to its AliGroup acquisition. Oplinger sees strong strategic and financial merit to the deal, which Alcoa unveiled at midyear. Integration and execution will be important. Alcoa is financing the deal mostly with debt, which will add some leverage to a balance sheet that is much improved over the past few years. Alcoa had just $1 billion of net debt before the coming transaction.

Wall Street reviews have been good so far. Jefferies analyst Chris LaFemina wrote in a recent client note that he sees "a path to a simpler and better Alcoa that we believe isn't fully reflected in the Alcoa share price."

Barclays analyst Richard Garchitorena recently initiated coverage of Alcoa with an Overweight rating and $55 price target, calling it a "crouching tiger, hidden dragon." His view: Lower aluminum prices are factored into the shares -- and the AliGroup deal was smart, and is a potential 2027 catalyst due in part to $900 million in total projected synergies including logistics, technology improvements, and some cost reductions.

Another plus for investors: Alcoa's small market value of $10 billion, solid industry position, and scarcity value could make it a takeover candidate in the consolidating mining industry, although the company may have created a poison pill with the AliGroup deal.

One worry for investors: Aluminum prices spiked after the start of the Iran war, as Middle East production was curtailed. An end to the conflict could be a negative because of potentially higher output in the region, pressuring prices.

Tariffs are also an issue for Alcoa because Canadian aluminum -- including sizable production from Alcoa's Quebec facilities -- are subject to a 50% U.S. tariff. But for Alcoa, the tariffs are offset by high U.S. aluminum prices to the world benchmark. That is a reflection of scant domestic production relative to demand.

Aluminum demand is expected to exceed production this year, but some on Wall Street are concerned that supply could top demand in the coming years due to new production from Indonesia.

There's also the China factor. China accounts for about 60% of annual aluminum production and a similar amount of demand. China has imposed a cap on aluminum production to prevent oversupply, but its adherence to that cap is a risk, as is Chinese demand.

Nonetheless, global aluminum demand is expected to grow by 2% or so annually over the next decade, and by 3% in North America, a key Alcoa market.

CEO Oplinger says there are no pure-play Western companies with Alcoa's size in the aluminum market. "If someone wants to invest in the aluminum value chain, there's one choice: Alcoa."

Alcoa also is one of the better investments in the mining industry.