Online Stock Trades: Steel Stocks

If many of the stimulus packages around the world center upon infrastructure rebuilding, there is no doubt that steel will be an important part of the economic recovery package.  It would be useful, then, to know what steel companies might benefit from the increased demand for their products.  I have listed 4 steel companies’ stocks below that may very well benefit from the increased spending on infrastructure products.

Arcelor Mittal (MT):  Arcelor Mittal is the world’s number one steel company with 2008 production of just over 103 million tons of steel produced which represents about 10% of the world’s steel production.  They had revenues last year of almost $125 billion from sales in 60 countries.  They produce steel in 20 different countries on 4 continents.  The stock is well off its 52 week low in the mid-teens but well below its 52 week high.

Commentary:  I think this company stands to benefit greatly from any potential recovery in steel demand.  They are well positioned with their geographic diversification to take advantage of recoveries and growth anywhere in the world.  The management of the Mittal family is also top notch.  I wish I had more money so that I could add this one to my portfolio.

United States Steel (X): US Steel has been a force in American industry for over 100 years being founded in 1901 by Andrew Carnegie. The company has annual steel production of 31.7 tons of steel. In 2008, they recorded record revenues of $23.8 billion with net profits of $2.1 billion. Like MT, the stock is well above its 52 week low but has plenty of distance between the current price and the yearly high.

Commentary: This is another large steel maker that will benefit from any economic recovery. You would have a hard time going wrong with this stock since it has tended to track its peers but lost more in the down draft. That’s why it might be a good play since it may do better playing catch-up to the others.

Nucor (NUE):  Nucor has a unique business model in the steel industry with their focus on recycling of scrap steel and the use of mini-mills.  They are actually the largest recycler of steel in North America with conversion of almost 20 tons of scrap steel into new products.  In 2008, they had record revenues of $23.6 billion with record net income of $1.83 billion.  The current P/E is 27.4 with a yield of 3.1%.

Commentary:  The stock has held up very well compared to its peers.  It may have to do with the business model, but I am not sure.  As the price of steel goes down, the cost to acquire scrap steel also declines.  Plus, Nucor has the ability with the mini-mills to shut down production selectively.  They have very good management and are good at controlling costs.  This stock is one that I would consider owning for the longer term as stable as it has been and with the record of solid dividends.  I would put this in my retirement account.

AK Steel Holdings (AKS):  AK Steel is a smaller Midwestern United States producer of steel with 2008 production of 5.9 million tons and revenues of $7.6 billion.  The year 2008 was a banner year with pre-tax income of $693 million.  They ended the year with a cash balance of $563 billion and began paying a dividend in 2008 as well.

Commentary:  I included this company since a few years ago I purchased the stock as part of their turn around story.  I made some profit and sold.  I view this stock as a little more speculative than the other three although I would note that the steel sector as a whole can be quite volatile.  The stock may do better in a recovery as steel prices increase.  I would consider owning this stock again, but as I did last time, would hedge with options.

The steel industry could benefit greatly with the stimulus packages that are designed to rebuild infrastructure around the world.  As the world’s economies recover, the stocks of these companies have the potential to do very well.  If you think that the recovery process will be occurring over the next several years, now may be the time to get into these stocks before inflation strikes again.