Excellence And Opportunity Boosting Ternium

Ternium (NYSE:TX) has done alright since my last update on this Mexican steel company, with the shares up more than 20% since April and getting into my $20-$24 fair value range. Of course, one of the ironies and frustrations for value investors is that worse companies tend to do better in commodity rallies, and while Ternium is up 20% and Steel Dynamics (NASDAQ:STLD) is up about 10%, Gerdau (NYSE:GGB) is up more than 75%, ArcelorMittal (NYSE:MT) is up more than 35% and Grupo Simec (NYSEMKT:SIM) is up about 30% over the same time period.

On the plus side, I think Ternium remains one of the best-run steel companies in Latin America (if not overall), and the company is leveraged to positive trends like low-cost slab supply and growing auto and appliance production in Mexico, not to mention recoveries in Argentina and Brazil. On the negative side, I don't see quite the same upside in the shares anymore and there are risks that discontent in the U.S. over NAFTA could lead to more sweeping changes down the road.

I still believe that Ternium is an excellent company, but I tend to be more demanding and conservative with my required returns for commodity companies. I think there are credible arguments for holding (and maybe buying) these shares given the strong margins and growth potential, but the overall expected returns aren't quite as robust as I'd like to really make this is a committed buy call.

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Excellence And Opportunity Boosting Ternium