Steel Stocks: Deep Value Investors Dream…

| October 13, 2011

My wife and I moved into our new house a few months ago.  The remnants of that chaotic move are still scattered all over our new garage.  We’ve been so busy remodeling this foreclosure home, we haven’t had time to unpack all our boxes.

Needless to say, my wife isn’t too happy about it.  So I spent last weekend sorting through it all.

Sound fun?

Yeah, right.

Going through piles of stuff in the sweltering heat of a Phoenix garage isn’t exactly my idea of a relaxing weekend.  But it had to be done.

And more importantly, my wife insisted on it…

All you married guys know what I’m talking about.  It was one of those things that had to be done NOW.  This chore had been on her ‘honey-do’ list for far too long.

So there I was sorting one big pile of stuff into two smaller piles of stuff.  One pile was for keeping, the other was for giving away.

And that’s when it hit me…

The giveaway stuff still has value- just not to us.  Clothes, old furniture, shoes, kids toys, you name it.  We’ve used it for years and now it’s somebody else’s turn to put it to good use.

Whoever ends up with this stuff will get a screaming deal!

This little epiphany led to my second revelation of the day…

Investors are doing the exact same thing.  They’re throwing great stocks into the giveaway pile.  And many are priced as if the companies are going out of business.

Steel stocks are a perfect example…

Most stocks in this industry have suffered a brutal selloff this year.  And that has them trading at bargain basement levels.  Case in point, global powerhouse Arcelor Mittal (MT).

How so?

Arcelor’s stock is trading for half of what the company’s assets could be liquidated for in bankruptcy.  In other words, you can buy this company for fifty cents on the dollar right now.

Now keep in mind, price to book is a rather simplified metric for valuing a stock.  Nonetheless, it’s still useful to help you find extreme value in the marketplace.

The best part is this company isn’t some fly-by-night speculative bet with a creaky balance sheet and no profits to speak of.  Arcelor Mittal is a global steel industry giant pulling in billions of profits every year.

What’s more, this cellar dweller has just over $3 billion in cash sitting on their balance sheet.  Not to mention, their stock pays a juicy 3% dividend.

Yet, just like my old t-shirt, Arcelor Mittal is sitting in the giveaway pile…

Fears of a global economic slowdown and banking chaos in Europe sent this stock plunging this summer.  It’s down nearly 50% from the 2011 highs.

Is it safe to buy here?

Given the positive European developments in recent days, bargain hunters are already swooping in to pick up Arcelor on the cheap. However, you may get one more chance to pick up this stock near the 52-week lows.

The S&P 500 is at the top of a short-term trading range, so we may see stocks fall in coming days.  If that happens, Arcelor should be trading at the $17 area… a juicy buying opportunity.

Another way to get exposure to the deeply undervalued steel sector is through the Market Vectors Steel ETF (SLX).

This widely watched ETF holds the world’s largest steel stocks.  Companies like Posco (PKX), Nucor (NUE), and Reliance Steel (RS) are all held in SLX… right along with Arcelor Mittal.

Bottom line…

Steel stocks are priced to the point of insanity.  Some of them are so undervalued you’d be crazy not to invest in them.  As long as Europe doesn’t drag the world into financial oblivion in coming months, steel stocks are a good long-term investment bet.

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Category: Stocks

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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