Never let a booming market go to waste. Brazil’s steel market has been strong and Gerdau (GGB) is taking advantage, leveraging both its strong share/capacity in Brazil and past cost initiatives to post record profits during this upturn. While recent profitability hasn’t been as strong in the U.S. business, the surge in prices here too should drive better results for at least the first half of 2021.
For all of the strength in Gerdau’s business, the stock hasn’t been the leader you might assume – as I’ve often said in reference to steel stocks, one of the paradoxes of this sector is that inferior operators tend to outperform in upcycles, and so it has been here. While Gerdau’s 50% move (closer to 40% for the ADRs) since my last article is good, Arcelor Mittal (MT) and Usiminas (OTC:USNMY) have roughly doubled the returns of Gerdau.
I like the recovery story in Brazil, but I’d be careful about pushing my luck here, as the shares are already trading at a pretty fair valuation unless you expect materially better performance (beat-and-raise) over the next few quarters – a definite possibility, but clearly not a certainty. I can see some trading/speculative appeal here, but I’d at least consider some stops as a defensive measure.
Read more here:
Gerdau Making The Most Of A Recovery Boom In Brazilian Steel
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