Friday, May 15, 2015

Seeking Alpha: Can Improving Cash Flow Finally Lift Ternium?

Latin American steel stocks have been like a siren for me, with alluring valuations and long-term demand growth leading me to steer straight into the rocks. In the case of Ternium (NYSE:TX), not only has a multiyear decline in steel prices continued to weigh on results, but the company's ongoing commitment to its increasingly contentious stake in Usiminas (OTCPK:USNZY) is arguably an even bigger cloud at this point.

There's an old quote about stocks that goes something like "the markets can stay irrational longer than you can stay liquid," and that's certainly something to keep in mind with Ternium. I continue to believe that this is a well-run steel company and I expect that the company is in place to start logging solid free cash flows as it exits an investment phase. The trouble is that while a low single-digit revenue growth rate may suggest a fair value in the mid-$20's there is no obligation on the part of the market to be fair.

Read more here:
Can Improving Cash Flow Finally Lift Ternium?

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