I wasn’t sure I’d ever see a day where steel companies were getting praised as good stewards of capital, ArcelorMittal (MT) in particular, but I suppose given everything that’s happened in the world since 2019, this is further down the list of “things I didn’t think I’d see…” As is, management is doing an excellent job here, with an improved focus on quality over quantity and an eye toward ensuring that shareholders share in more of the upside.
While I do think that many steel stocks have overshot in the cyclical correction and that prices are likely to stabilize relatively soon in the U.S. and Europe, the reality is that sentiment remains a risk as margins are likely to slip further. What’s more, Russia’s invasion of Ukraine creates even more uncertainty for ArcelorMittal given the company’s significant operations in that country.
I was neutral on these shares (and the sector) back in September, and while ArcelorMittal hadn’t done any worse than the average steel stock since until the invasion of Ukraine, the sector has underperformed the broader market. These shares do look undervalued now, but I do also see more long-term risk to sentiment on post-peak margin declines and the situation in Ukraine.
Investors who can afford to be patient (as well as assume the risk of greater steel price corrections and a bad outcome in Ukraine) may well see outsized rewards, but I’m not eager to pursue the elevated risks here even though management is doing a commendable job.
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ArcelorMittal: Macro Risks Weigh Heavily On An Improved Story
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