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Why Hold ArcelorMittal?
Posted by: Anthony Balls (IP Logged)
Date: December 10, 2013 01:22PM

I have been following ArcelorMittal (MT) for years. Before the financial crisis took the market down for a bumpy ride, steel prices were high and the industry was profitable everywhere. ArcelorMittal was the result of a series of M&A which led to the creation of a steel giant: the biggest in its industry.

In 2007, before the crush, MT stock price was around $100. Now, after touching a bottom of nearly $10 on July 2013, it has recovered some ground to $16,68. The stock has been beaten so bad that its price is now almost 85% down from its value six years ago.

Some of ArcelorMittal's competitors like US Steel (X), AK Steel (AKS) and Nucor Corp. (NUE) have also taken a hit. NUE did a lot better than all the rest in part due to its isolation from European markets and its conservative management, who took the right direction in terms of low debt and cash hoarding to deal with a long stormy weather. NUE is also highly specialized and the U.S. recovery has been positively priced in its value.

I am long in the steel sector, but this would not be my top pick because I like cheap stocks. I don't think this one is a bargain.

US Steel is still on the red but getting better. Its numbers improved in quarter three, but they are not convincing enough. X and AKS both have to deal with foreign competitors like MT which is much more diversified and has some scale and integration advantages as well as more flexibility to adapt in case things take longer to get better.

Anyone may say that many of ArcelorMittal's plants stopped being profitable once steel prices went down. It's true. Some people may say that the company's financial situation is complicated. It's also true. But I still think the stock is oversold.

Many years have passed since the financial crisis, and the company is not the same. It has reduced debt by the selling of assets that did not account much for production and its board has worked hard to reduce costs and shut unprofitable plants. All of these efforts seem to have worked well as we all noticed that the third quarter beat forecasts, and net loss narrowed substantially.

Here's what I think we may see in quarters to come:
  • - Steel prices begin to stabilize and even rise.
  • - Europe stops declining and steel demand starts growing.
  • - China's steel demand still strong.
  • - US economy continues recovery.
  • - MT continues vertical integration reducing costs.
With all or some of these factors combined, the stock should have a considerable upside for those who are willing to enter at current values. This may not be the perfect timing as threats to an immediate full recovery are still strong. It may be painful at the beginning, but I'm sure the rewards will be great for the long-run investor.

Stocks Discussed: MT, X, AKS, NUE,
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