ArcelorMittal's Low Valuation Offset By A Weak Price Outlook

One of the quirks of investing in commodity companies, and steel in particular, is that you typically want to own the inferior companies during the up-cycles. While pretty much every steel company saw share price improvement in the 2016-2018 upswing, names like ArcelorMittal (MT) and U.S. Steel (X) outperformed generally better-regarded names like Steel Dynamics (STLD) and Nucor (NUE) (though Steel Dynamics did quite well). Since the peak of steel prices, the script has flipped and ArclorMittal and U.S. Steel have noticeably lagged those other names.

I believe this second quarter will likely mark the bottom of the cycle for shipments, but I believe pricing could be lower for longer, which complicates positioning for the cycle. Lower-quality companies tend to do better when steel prices bottom and rebound, and that may not happen for several years. Consequently, while ArcelorMittal shares do seem to be trading at a very low valuation, even in the face of deteriorating near-term results, the uncertain timing of a sustained rebound in steel prices makes this a tougher call.

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ArcelorMittal's Low Valuation Offset By A Weak Price Outlook