Thursday, March 19, 2009

Ready to buy MT?

Robert Hsu just sold MT. It means MT should be at a historic low level.
Mr. Hsu was able to lose 33% on this trade, all in less than two months.
Here is the story:
January 28th 2009
New Buy: ArcelorMittal
As you already know, a big support in China's economic turnaround this year is the country's $586 billion stimulus package. The plan will increase China's infrastructure spending, and boost its demand for the materials for construction. That means that steel companies will benefit from the government's aggressive spending in rail transportation and public construction. And considering that the U.S. is about to implement a stimulus package that will boost infrastructure, global demand for steel will increase dramatically.
This is a great investment opportunity for us, and that's why I recommend we purchase shares of ArcelorMittal (NYSE:
MT). Founded by Indian tycoon Lakshmi Mittal, MT is the largest and the most integrated steel company in the world. It has business in 20 countries across Europe, Asia and the Americas, and it has benefited from a healthy global demand for steel in both developed and emerging countries.
MT produces 116 million tons of steel a year, which accounts for around 10% of world steel output. The company ships 19% of that steel to Asia and Africa, 35% to the Americas, and 46% to Europe. And with a growing presence in Asia, ArcelorMittal has a controlling stake in an integrated steel mill in China.
A key element of the company's strategy is to operate as a vertically integrated business. The company is the largest steelmaker by volume, and it offers the broadest range of steel grades, advanced products, steel solutions and technologies. ArcelorMittal has many different customers, including those in the automotive, appliance, engineering, construction and machinery industries. And ArcelorMittal's booming business has created its strong financial position and cash flow generation. In the third quarter of 2008, sales rose 38% to $35.2 billion, while net income increased 29% to $3.8 billion.

Steel is Hitting a Bottom
You may be hesitant about investing in a steel company considering that steel prices have dropped along with most commodities. Steel producers worldwide have idled capacity and cut workers to reduce costs, as steel demand from automakers and builders plunged. Though steel prices have collapsed, recent steelmakers' earnings announcements signaled that they were still doing pretty well. That's because raw material costs have fallen and steel inventories will need to be replenished this year. And while some pessimists are concerned about oversupply, I think steel demand from countries' stimulus packages will prevent this from happening. This is why I think the fourth quarter of 2008 could have been a bottom for steel makers, and I expect steel prices to rebound in March or April.
In my view, ArcelorMittal is the best play on a recovery in the global steel industry. With one of the most flexible business models and a strong global presence, the company should be able to generate significant profits even in an economic downturn.
In the past eight months, MT's stock plunged 75% from its record high to today's price around $25. Trading at a trailing P/E ratio of only 2.4 and with a 6% dividend yield, MT is significantly undervalued. Buy MT under $25. I'm targeting $35 in the next six to eight months, which would give us a nice 40% gain.
February 4th
ArcelorMittal (NYSE: MT) is shutting down its Lackawana plant in an effort to cut costs in a slowing environment. In addition, MT said that it plans to cut liquid steel output at its Kazakh plant to 3.2 million tons this year from 3.4 million tons in 2008. MT said that the slash in production is due to declining orders for the steel. This production reduction is another example of cost cutting, which is a smart move in the current economic environment. Buy MT only when it is under $25.
February 11th
ArcelorMittal (NYSE: MT) reported its fourth-quarter earnings today. While earnings fell 42% to $2.81 billion, this figure is still above the $2.29 billion expected by analysts. In addition, steel shipments fell 39% after MT slashed output at its mills in response to weakening world demand. I continue to think global infrastructure stimulus packages will help demand for steel. Buy MT only when it is under $25.
February 18th
ArcelorMittal (NYSE: MT) reported better-than-expected fourth-quarter earnings last week. Although earnings fell 42% to $2.81 billion in the fourth quarter, this was above the $2.29 billion estimate by analysts. In addition, MT's sales lost 21% to $22.1 billion. And the company lowered its dividend to 75 cents a share.
MT's net debt fell $6 billion during the quarter to $26.5 billion, and the company said it's on track to cut its debt by $10 billion by the end of 2009. MT also added that its capital spending for this year will be $3 billion, which is below the $4.5 billion previously forecast.
In terms of MT's production, it said that it will continue its output reductions until inventories are completed. I expect MT's business to turn around as global steel inventory gets depleted as a result of global stimulus packages. Buy MT under $25.
February 25th
ArcelorMittal (NYSE: MT) announced this week that it will not be acquiring or merging with companies any time soon. MT's global business was created mostly through these measures, but the global economic slowdown has caused the company to temporarily halt these actions. The stock fell on the news this morning, but has gained a bit since the announcement. Overall, I don't think this decision will make a big difference for the company right now. Buy MT under $25.

March 4th
ArcelorMittal (NYSE: MT) shares traded lower since last week, but they have moved up in the last two days. It is helping that ArcelorMittal South Africa Ltd, a unit of ArcelorMittal, is keeping prices across all steel products steady after cutting production by 35% during the first quarter. In fact, the South African company plans to operate at about 65% capacity during the first quarter of this year.
Overall, MT's stock is trading at a steep discount, due to the global financial crisis. But I recommend holding our MT shares because Europe and the U.S., the company's main markets, are still in a slump even though steel demand in China will likely be strong. Looking forward, I expect the Chinese stimulus plan to support global steel prices. But for now, hold MT.
March 11th
ArcelorMittal (NYSE: MT) announced this week that it is shutting down two of its U.S. steel mills as the recession continues to weigh on steel demand. This is part of the company's plans to cut 45% of its production capacity until steel inventories diminish and steel demand increases. The plants to be shut down are in Georgetown, South Carolina, and Cleveland, Ohio, and the company will be laying off employees. However, MT says that it plans to rehire those employees when the steel market improves.
I don't think that the production cuts will impact MT. Steel continues to be a good way to benefit from global stimulus packages. But aside from China, other stimulus packages have been disappointing in the relative absence of infrastructure projects. Hold MT.
March 18th
Sell ArcelorMittal, Suntech Power & ProShares UltraShort Euro
Because of the recent bounce in global stock markets, I am recommending that we minimize our losses on two of our current trades by selling them today, as well as sell one of our currency trades. Let's take a look at all three of these recommendations, and why I think we should sell them now.
If you recall, in late January, I recommended investing in ArcelorMittal (NYSE:
MT). I thought it would be a great way to benefit from the boost in infrastructure spending in China and the U.S., fueled by each country's respective economic stimulus packages. I also expected the global steel industry to recover better than it has. But with the economy continuing to spiral downward, this has not happened as soon as I expected.
In fact, during the first quarter, steel demand has remained very weak, and as a result, the world's largest steelmakers are slashing production. Steel prices have plunged by more than half from a record in July as sales of automobiles, appliances and homes slowed. And there are few signs that this weakness will abate, as the recent stimulus plan will not show any effect on the steel market until the end of the year.
Because of this, MT's shares tumbled. In addition, the company took a hit after the Financial Times said there was speculation that ArcelorMittal might need to raise money from secondary offering. Although the steelmaker denied the report and reiterated it doesn't need to raise capital, the stock still tumbled. Now, the stock has broken its key support level, and considering these factors, I think shares might decline even more. Now is a good time to sell because the stock market has rallied 13% off the bottom. So, I want you to sell MT.
We will see in the next week how good it was to sell MT at this time at $17.68...

1 comment:

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