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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