This depressed stock may be poised for a big run

In the past few years, commodities in general have been decimated, including almost everything. Aluminium (alu) is certainly one of them. China is the largest country demanding aluminium but its economy has greatly slowed down in the past year. This alone has caused a drastic decline of the aluminium price. No need to say, alu producers have all suffered. Among them the largest alu manufacture, Alcoa (AA) has seen its price tanked by 40% in the past year and is at around all time low at the moment. While it is definitely scary to think about put money into AA right now, there may be some good opportunity to bet for AA's turnaround. Three major catalysts may serve as its tailwind to push it higher in the next few years:

• As mentioned, Chinese economy has significantly slowed down in the past year or so but I think the worst case scenario may have already been priced in for AA regarding the very depressed demand for alu from China. Any pickup of the Chinese economic activities will certainly increase the demand of resources including alu. There is another new trend which should also be quite positive for AA. China has just announced to abandon its one child policy and is moving to 2 children policy. This will mean tens of millions of additional babies will be added every year in China. One significant impact of this additional population will be an increase of its demand for all kinds of resources with alu among them. For sure the positive impact won't be imminent but will be felt and reflected by the AA's stock as well moving forward. 
• Alcoa is developing a new process to produce a new type of alu (micromill), which is called "Miracle Materials". Basically this new alu material will be much lighter and stronger. This new feature of alu is certainly great news for car and aircraft sectors as they may largely benefit from this critical miracle material to increase the safety and fuel economy of their products. No wonder AA has just announced a $1 billion contract from Airbus. More such deals will certainly come in the next few years.
• Last but not least is a catalyst that may make AA soaring more quickly than the above more macro factors. Alcoa has just announced a spin-off that will be done next year. Studies have shown that spin-off is usually very positive for the company and therefore greatly welcome by the Street. This is because the spin-off will generally make the company more focused and efficient and is also easier for the Street to analyse its business for the underlying values. The direct benefit for shareholders will be that they will get the shares of the spin-off company for free. Of course the initial value of both stocks will be largely equal to the value of the mother company prior to the spin-off. But over time their share prices may significantly increase as long as they manage their business well. I have had the first hand experience on this. I got free shares of Philip Morris (PM) in 2008 when it was split off from Altria (MO). Now after 7 years, not only PM's share price has almost doubled, MO has "recovered" as well, as its current share price is much higher than its adjusted price at the spin-off. More recent example is HP that has just closed the spin-off a few days ago. Its share price surged 13% on the day when the new stock started to be traded. I expect something similar to AA may also occur.

Of course, please do understand this is not a short-term trading idea but rather for a longer-term investment. Regardless how bright AA prospects look like in the next few years, it will be a quite volatile stock for sure as for any commodity stocks. But I think the potential reward outweighs the risk, especially if you have a good exit strategy in place, e.g. a stop loss to protect your capital.