When the market doesn't act the way you think it should, that's a good time to reassess your basic assumptions. In the case of Universal Stainless & Alloy Products (USAP) ("Universal"), the shares of this steel alloy producer haven't responded to the improving outlook for aerospace or heavy industry (80% of revenue), and the shares are down close to 20% since my last update, lagging the S&P Metals and Mining ETF (XME), other aerospace-leveraged alloy companies like Allegheny Technologies (ATI) and Carpenter Technology (CRS), and Hexcel (HXL), a provider of carbon fiber materials to the aerospace industry.
At the risk of hubris, I think the market is wrong and these shares are being overlooked, perhaps due to the fact that they have next to no coverage. While Universal is definitely not a well-run "buy and hold" type of long-term holding, the company's leverage to the aerospace cycle is significant, and the company should see meaningful revenue growth in 2022, as well as positive operating leverage. With a near-term fair value of around $14, this looks like an interesting, if speculative, trade on improving aerospace demand trends.
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With Aerospace Recovering, Universal Stainless & Alloy Products Should See A Meaningful Ramp
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