Better Buy: Silver Wheaton Corp. vs. Alcoa

Image source: Silver Wheaton.

Commodities stocks have been under pressure for years, and both Silver Wheaton and Alcoa have seen their share prices take huge hits. However, both companies are looking at strategies to find opportunity in the midst of difficulty, and investors looking at the sector want to know which one is the better buy.

Let's compare Silver Wheaton and Alcoa on several key metrics to see which looks more attractive currently.

Valuation Both Alcoa and Silver Wheaton have given up ground over the past year, but Alcoa's decline has been more severe. The aluminum and lightweight-metals specialist has suffered a 23% loss for its stock, compared to an 11% drop for Silver Wheaton.

Some of the simplest traditional valuation metrics for comparing Silver Wheaton and Alcoa aren't available because both companies have faced challenges in producing meaningful profits. Silver Wheaton posted a GAAP loss in 2015, and that resulted largely from a substantial writedown of asset values related to its streaming interests in several mining properties. Alcoa has also lost money over the past year, and restructuring charges and associated income tax expenses have been largely responsible for the company's red ink.

Looking forward, numbers become more meaningful. Based on forward projections, Alcoa currently trades at about 18 times forward earnings. That compares to a higher forward multiple of 27 for Silver Wheaton. If you have confidence in those estimates, then Alcoa has an edge on valuation over Silver Wheaton.

DividendsBoth Silver Wheaton and Alcoa have sustained modest dividend payments, bucking pressure within the industry to preserve cash for other purposes. Both companies currently have a yield of around 1.2%, with Alcoa edging out Silver Wheaton by hundredths of a percentage point.

Neither company has an enviable track record in its dividend history. Alcoa slashed its dividend by more than 80% in 2009, and since then, it has maintained that $0.03 per share quarterly payout without change. Silver Wheaton has undergone a different path, having seen its dividend climb as high as $0.14 per share in early 2013, when silver and gold prices had just approached their peak. Since then, six dividend cuts have reduced Silver Wheaton's payout by almost 65%. Both stocks look roughly equal in terms of dividends.

GrowthNeither Alcoa nor Silver Wheaton has had success in growing substantially under tough conditions, but they've made progress in their long-term strategic visions. For Alcoa, the most recent quarter brought huge pressure to its upstream business because of falling prices for base alumina and for commodity aluminum metal products. However, the company continues to emphasize the greater growth potential of its value-add business, which includes custom products for the aerospace and automotive sector. That business posted a disappointing sequential drop in revenue in its most recent quarter, but large aerospace orders point to better times later in 2016. Moreover, restructuring efforts to boost its exposure to fast-growing industries and its plans to split into two separate companies could help Alcoa grow faster once commodity prices rebound.

For Silver Wheaton, low silver and gold prices have crimped profitability. Production figures have been impressive, with the company posting 47.7 million silver-equivalent ounces in 2015, up 35% from 2014's levels. Silver Wheaton has been able to take advantage of financial difficulties among mining companies to provide lucrative financing deals, and that should set the stage for a huge rebound if silver prices rise in the future. Until that happens, though, Silver Wheaton will struggle to give investors the growth they've patiently waited to see.

With so many similarities, it's hard to pick a better buy between Alcoa and Silver Wheaton. Alcoa arguably has a very slight edge based solely on the potential its value-add business spinoff could have for investors, but for those who are looking forward to better times in the commodity arena, both stocks have the potential to post huge gains.

The article Better Buy: Silver Wheaton Corp. vs. Alcoa originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.