With Sluggish Demand, Is Ternium Really So Cheap?

Just so there’s no confusion later, I’ll state my conclusion right off the top – I still like Ternium (TX) and I still think this Mexican steelmaker is trading too cheaply. But the shares haven’t done much this year and they’re down about 14% over the past three months, while other steel companies like Steel Dynamics (STLD), Nucor (NUE), Gerdau (GGB), ArcelorMittal (MT), and CSN (SID) have done better … though “better” is a relative term here, as only CSN has outperformed the S&P 500.

Are the glory days over for steel? Certainly that’s a popular question now, and the market seems to think it’s likely that the U.S. will eventually negotiate on some of its protectionist measures, opening the door to more imports and lower prices. For Ternium in particular, a new NAFTA agreement is more likely to help than harm, but it’s hard to be wildly enamored of a company where demand in its two largest markets is weakening on a sequential basis. I do still think that Ternium shares are too cheap, but the risk of lower estimates and multiples is real and it may be hard to coax investors back into the steel sector at this late point in the cycle.

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With Sluggish Demand, Is Ternium Really So Cheap?