Acerniox Waiting For The Cavalry To Show Up

Acerinox (OTCPK:ANIOY) (ACX.MC) could really use some good news where pricing is concerned. Although tariffs have helped shield the U.S. stainless steel market, stainless hasn’t enjoyed the same pricing power or spreads as carbon steel in the U.S., and a surge of imports has hammered pricing in Europe and unwound expectations for a second half improvement. While there are hopes that protectionist measures from the EU will boost pricing in 2019, it doesn’t look as though margins will improve significantly from here.

I was reluctant to recommend Acerinox in my last update, and I’m glad I didn’t, as the shares have lost almost a third of their value since then. Acerinox has held up a little better than fellow Euro stainless players Outokumpu (OTC:OUTKF) and Aperam (OTC:APEMY), and AK Steel (AKS) in the U.S. (while Allegheny (ATI) has held up a little better), but it has been an ugly and disappointing year and it’s still not clear to me that a better 2019 will be good enough to make this a strong performer.

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Acerniox Waiting For The Cavalry To Show Up

Seeking Alpha: ArcelorMittal Down, But Not Out

You'd be hard-pressed to find a steel stock that has done worse since my last favorable write-up on ArcelorMittal (NYSE:MT). The shares are down about 13% since then, about as much as Latin American steel companies Ternium (NYSE:TX) and Gerdau (NYSE:GGB), but worse than Nucor (NYSE:NUE) and much, much worse than Steel Dynamics (NASDAQ:STLD), AK Steel (NYSE:AKS), and U.S. Steel (NYSE:X).

That ArcelorMittal is underperforming AK Steel and U.S. Steel isn't shocking to me; less efficient players like U.S. Steel and AK Steel do better in recovering markets and both of those companies are more highly leveraged to the U.S. market (one of the stronger steel markets today). Some of the other relative performances are a little harder to explain; tempting as it may be to blame ArcelorMittal's woes on weak iron ore, even Vale (NYSE:VALE) and Fortescue (OTCQX:FSUGY) (both iron miners) have outperformed ArcelorMittal over the past three-plus months. With all of that said, I'm still bullish on ArcelorMittal as a play on better steel prices, production rationalizations, and a global construction recovery.

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ArcelorMittal Down, But Not Out

Seeking Alpha: Share, Prices, And Costs Seem To Be Working In Nucor's Long-Term Favor

Commodity stocks can be frustratingly counter-intuitive during recoveries, as it is often the inferior companies that outperform. I don't know if anybody will argue that Nucor (NUE) isn't the best-run steel company in the business (or at least very near the top), but over the past year the shares of AK Steel (AKS) and U.S. Steel (X) have dramatically outperformed Nucor.

This year has been a little more frustrating, though, and Nucor has been outperforming on a relative basis - just barely negative while Steel Dynamics (STLD), AK Steel, U.S. Steel, and ArcelorMittal (MT) have fallen around 5% to 15%. Nucor doesn't immediately jump out as a cheap stock on conventional multiples, but the company's cost-reduction efforts should improve long-term margins and the company is still waiting for the recovery in construction that should boost demand, utilization, and margins.

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Share, Prices, And Costs Seem To Be Working In Nucor's Long-Term Favor

Investopedia: POSCO's Above-Average Quality Already In The Shares

With economic weakness stretching from Europe to Asia to North America, there is no shortage of resource and commodity companies that appear to be trading below fair value. That's not quite so true in the steel sector, though, where valuations have seemingly held up a little better. Unlike global steel giant ArcelorMittal (NYSE:MT), which does appear to be meaningfully undervalued, South Korea's POSCO (NYSE:PKX) appears to be enjoying a relatively healthy benefit of the doubt from the Street. While I certainly wouldn't argue that POSCO will go along for the ride when investor sentiment on steel turns more positive, I think the margin of error here is too slight to make this a compelling buy today, even with the stock near a 52-week low.

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Investopedia: Another Quarter, Another Warning From Steel Dynamics

Tuesday evening marked a continuation of a pretty unfortunate trend for Steel Dynamics (Nasdaq:STLD), as the company once again revised its quarterly guidance lower. Although Steel Dynamics' situation may not be identical to other domestic steelmakers, it would seem that investors would continue to do well in approaching these stocks with caution for the time being.

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http://www.investopedia.com/stock-analysis/2012/Another-Quarter-Another-Warning-From-Steel-Dynamics-STLD-NUE-CMC-X0913.aspx

Investopedia: Metal Fatigue At Steel Dynamics

Although I don't own it, I nevertheless feel like I've spent a lot of 2012 supporting or coming to the defense of steel companies like ArcelorMittal (NYSE:MT), Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD). Maybe there's some logic there, as buying into beaten-down commodity stocks can be a good way to earn short-to-intermediate capital gains, or maybe I'm just stubborn. Whatever the case, it's getting harder and harder to stay optimistic on Steel Dynamics even though (yep, you guessed it) the shares don't look especially pricey today.

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http://stocks.investopedia.com/stock-analysis/2012/Metal-Fatigue-At-Steel-Dynamics-STLD-NUE-MT-AKS0725.aspx

Investopedia: Another Challenging Quarter At Steel Dynamics

Unfortunately, another quarter is in the books and the song pretty much remains the same for the steel industry. Customers are pushing back fairly successfully on price hikes, and demand in traditional steel-heavy applications just hasn't recovered as expected. Steel Dynamics (Nasdaq:STLD) still looks undervalued, but it's tough to be patient with a lagging stock in an otherwise reasonably good market.

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http://stocks.investopedia.com/stock-analysis/2012/Another-Challenging-Quarter-At-Steel-Dynamics-STLD-NUE-AKS-X0420.aspx

Investopedia: Another Mid-Quarter Disappointment In Steel

Stop me if you've heard this one before - it's close to the end of a quarter and a trio of the U.S.'s largest steel companies, Steel Dynamics (Nasdaq:STLD), Nucor (NYSE:NUE) and AK Steel (NYSE:AKS), have revised guidance lower. This has been an all-too-common phenomenon recently, even if investors still seem relatively confident about full-year performance. Although there is still a case to make that some individual steel stocks are too cheap today, it's worth wondering how many disappointments the sector will absorb before investors lose confidence. (For more, see Earning Forecasts: A Primer.)

A Trio of Cuts  
Within about 24 hours of each other, Nucor, AK Steel and Steel Dynamics all substantially lowered their guidance for first quarter earnings. Steel Dynamics dropped guidance by about 50% relative to prior expectations and Nucor's revision was similar in magnitude. For AK Steel, the magnitude of the revision was similar to Steel Dynamics in terms of cents per share (about 16 cents), but also means a quarterly loss instead of the expected profits.

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http://stocks.investopedia.com/stock-analysis/2012/Another-Mid-Quarter-Disappointment-In-Steel-STLD-NUE-AKS-AA0320.aspx

Investopedia: Nucor's Rally Leaves Little On The Table

Since the title of this article largely hints at the conclusion, let me make it clear that I think Nucor (NYSE:NUE) is one of the best commodity companies in the world and maybe one of the best-run companies in the country. The question for 2012, then, is whether the market for steel products can develop even more favorably than a generally bullish chorus analysts already expect. 

2011 Ends on a Shrug  
Although Nucor's year-on-year comparisons for the fourth quarter look strong, whatever happened last year may as well have happened 100 years ago for all it matters to current market conditions. So, 25% revenue growth and 120% earnings before interest, taxes, depreciation and amortization (EBTIDA) growth is all well and good, but largely irrelevant to investors. (For related reading on EBITDA, see EBITDA: Challenging The Calculation.)

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http://stocks.investopedia.com/stock-analysis/2012/Nucors-Rally-Leaves-Little-On-The-Table-NUE-STLD-MT-AKS0130.aspx

Investopedia: Still Waiting For Alcoa To Work

As aluminum is an economically sensitive metal, it is probably no great surprise that Alcoa (NYSE:AA) stock has underperformed amidst growing worries that the U.S. will trip over into recession. On the other hand, there are a lot of secular positives for both aluminum and Alcoa, that argue in favor of the thought that this stock should work at some point. The question, then, is whether patience can really pay large enough dividends to make Alcoa worth the time and trouble.

A Fixed Third Quarter   
Alcoa missed the earnings estimate for the quarter and that's certainly disappointing. It also isn't quite as bad as it may seem. Revenue rose about 21% from last year, but declined about 3% from the prior quarter. Performance was fairly consistent across the company's operating segments, but Alcoa did see a slowdown in demand from automakers and heavy truck manufacturers. On the profit side, ATOI (after-tax operating income) rose 41% from last year, but dropped 27% on a sequential basis.

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http://stocks.investopedia.com/stock-analysis/2011/Still-Waiting-For-Alcoa-To-Work-F-AA-RIO-BHP-ACH-BA-GE-AKS-WHR1017.aspx

Investopedia: Play Steel Dynamics For The Next Materials Story

Every commodity and resource boom is a little different, but it is not uncommon to see divergent trends between materials. Materials like copper and iron ore can have their runs only to be followed later by the likes of steel and aluminum. With steel prices starting to firm up, and industrial conditions staying strong, now might be a good time to consider the likes of Steel Dynamics (Nasdaq:STLD).


A Solid Open to the Year
Due in part to strong pricing, Steel Dynamics surpassed the average revenue estimate for the quarter. Investors should note, though, that there was a very wide range of published estimates ($1.1 billion to $2.2 billion). In any case, revenue rose nearly 30% from last year and almost 32% sequentially. Average selling prices rose 21% from the year-ago level, and more than 18% sequentially, while shipments rose about 10% on a sequential basis. (For more, see Steel Cycle Looks Good.)

The company's cost and profit performance was also stronger this time around. Scrap costs were higher, but operating efficiency handily surpassed that increase. Gross margin jumped more than a full point from last year, and nearly six full points from the fourth quarter. Operating margin improved even more - up more than 160 basis points from last year and more than tripling from the fourth quarter.


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http://stocks.investopedia.com/stock-analysis/2011/Play-Steel-Dynamics-For-The-Next-Materials-Story-STLD-NUE-AKS-PKX-CMC0420.aspx

Investopedia: Lincoln Electric: A Quality Niche Industrial

With a 42% rise in the stock over the past year and 140% since early 2009 lows, clearly there have been rewards for the nimble and patient with welding equipment maker Lincoln Electric (Nasdaq:LECO). Lucky for Lincoln Electric, though, welding is strongly tied to industrial activity, and the company seems to be looking at a prolonged multi-year recovery in business.   

A Solid End to a Rebound Year
Lincoln Electric surpassed analyst expectations for the fourth quarter, posting 22% revenue growth and surpassing the high-end analyst estimate by 7%. Those results are good enough in their own right; even better when considering the 9% sequential growth and the historical trend for the fourth quarter to be soft. Looking at the company's markets, North American sales jumped 25%, while South America was the laggard at 8% growth. Overall, the company saw volume increase 20% - a strong testament to the increased business activity and product demand.

Profitability was more of a mixed bag for the company. Gross margins shrank by nearly three full points as the company reversed a large LIFO credit to a small charge, but the company did recover a lot of this through an even bigger reduction in SG&A spending. All in all, adjusted operating income rose 26%, while adjusted net income increased 38%. 


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http://stocks.investopedia.com/stock-analysis/2011/Lincoln-Electric-A-Quality-Niche-Industrial-LECO-ITW-CAT-F-ABB0224.aspx.

Investopedia: Running Like A Deere

When crop prices are high, there is a go-to line-up of stocks for theme investors to play. Fertilizer names like Potash (NYSE:POT) and Mosiac (NYSE:MOS) usually catch a bid, as do seed companies like Syngenta (NYSE:SYT). And then there are the machinery companies - stocks like AGCO (Nasdaq:AGCO), CNH Global (NYSE:CNH) and the biggest of them all, Deere (NYSE:DE). Whether the logic always works out as expected (high crop prices produce more cash for farmers who can buy new equipment) or not, these have been bullish times for crops and bullish times for Deere's stock. 

The Quarter That Was
Whether the byproduct of high crop prices, better credit access, more optimism among farmers, or some combination, Deere delivered another strong quarter. Revenue rose 30% this period to over $5.5 billion, with agriculture (and turf) up 21% and construction (and forestry) up 81% from a low base. Although that was a solid jump in sales, it was nevertheless below the average analyst estimate of $5.67 billion.

Like most heavy machinery manufacturers, Deere's business is more profitable when the factories have solid throughput. To that end, higher revenue helped enable improved gross margin (up about 150 basis points from last year). Deere's management also deserves praise for holding the line on operating expenses, as operating income more than doubled and the operating margin expanded by more the four points. As a result, though Deere came up short on revenue the company handily surpassed the average EPS estimate. (For more, see 4 Things to Know About Earnings Season.)

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Investopedia: Nucor And The Steel Sector Look Toward A Better 2011

Nucor (NYSE:NUE) was the last major U.S. steel company to report earnings in this cycle, but many of the themes in the results and outlook were familiar. Mini-mill operators Nucor and Steel Dynamics (Nasdaq:STLD) and conventional steel makers AK Steel (NYSE:AKS) and U.S. Steel (NYSE:X) are clearly all different companies, but every company pointed to a tough fourth quarter, improved pricing in early 2011 and a stronger overall outlook for steel demand. Barring any odd twists in the economic situation, it looks like 2011 will be a better year all around, as better pricing seems to not only be sticking, but outpacing cost growth. 

Nucor Probably Glad to be Done With 2011
Although 2010 was by no means a disaster for Nucor, the last half of the year was a tough operating environment as the company was squeezed by so-so pricing and higher costs. For the fourth quarter total revenue dropped 7% though external shipments climbed about 15% and realized prices climbed about 14%. Scrap costs were also considerably higher in the quarter, though, climbing about 30% from last year.

Talking about the quarter and its outlook, management did point to signs of improvement in demand as well as a solid pricing environment. Though not specific to Nucor, the increase in hot-rolled prices since November lows has roughly doubled the increase in scrap costs, so that is clearly moving in the right direction for Nucor. Moreover, the company is moving ahead with a direct reduced iron plant in Louisiana - a plant that will help the company's cost structure over time, as direct reduced iron is an important ingredient in improving the quality of steel produced by mini-mills. (For more, see Steel Cycle Looks Good.)

The Look Around
As mentioned, Nucor's results were directionally in line with the rest of the U.S. steel sector for the fourth quarter. Steel Dynamics reported that shipments and pricing were soft on a sequential basis (that is, comparing the fourth quarter of 2010 to the third quarter), while up by a low-teens rate on a year-over-year comparison. Steel Dynamics also pointed to a revival in demand and a firm pricing outlook for 2011. Investors should keep in mind that both Nucor and Steel Dynamics are relatively leveraged to construction - a market that has yet shown only the barest signs of recovery. (For more, see Is Now The Time To Invest In Steel?)


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http://stocks.investopedia.com/stock-analysis/2011/Nucor-And-The-Steel-Sector-Look-Toward-A-Better-2011-NUE-STLD-AKS-X0131.aspx

2010 - A Year Of Only Modest Recovery In Steel

As much as people want to write about the "new economy" and the new rules of economic development, the fact remains that steel is a key component. When economies are strong, there is higher demand for steel in non-residential construction, automobiles and all manner of industrial and consumer goods. To that point, 2010 was a challenging year for steel companies and steel stocks as soft demand capped not only shipment volume but restrained companies from fully pushing on the impact of higher input prices. 

A Rare Laggard In Materials
In almost every other respect, 2010 was a great year for materials companies. While the steel sector still did relatively well (basically tracking the S&P 500), much of that came from a late rally after third quarter earnings and rising optimism about higher prices in 2011. Relative to gold, copper, coal and other industrial metals, steel was a laggard for the year as a whole.

It made relatively little difference whether a company was an integrated global steel producer or a mini-mill. World-leaders like Korea's POSCO (NYSE:PKX) and Europe's ArcelorMittal (NYSE:MT) both saw their stocks decline by double-digit percentages, while U.S. mini-mill operators Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD) did a fair bit better on a relative basis. American integrated producers U.S. Steel (NYSE:X) and AK Steel (NYSE:AKS) had very mixed performance, as AK Steel's stock fared quite poorly and U.S. Steel did relatively well. (For more, see Is Now The Time To Invest In Steel?.)


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Stocks With Good Growth, But Poor Outcomes

Given the stock market's bottomless appetite for growth, it stands to reason that companies posting solid growth will see good performance in their stocks. In most cases, this is true. But like every good rule of thumb, this is one that has some exceptions to it. Examining a list of some of the notable "growth underperformers" this year might be a good place to start an investor's after-Christmas shopping. 

No Good News in Healthcare 

If any sector is due for a rebound in 2011, healthcare might just be it. These companies already had enough problems with the recession - a poor job environment and overall economic worries have either taken away people's health insurance or made them very nervous about spending any extra money. As a result, patient visits are down, procedure counts are down, and hospitals are skittish about buying any non-essential equipment. Then the FDA decided to pick 2010 as the year to make a statement that it was prioritizing safety above all else and that new drugs and devices would have to pass a new and unpublished "double secret probation" to reach the market.

In that environment, both Intuitive Surgical (Nasdaq:ISRG) and Nuvasive (Nasdaq:NUVA) have found 

their status as one-time med-tech growth darlings come into doubt. Both have posted excellent and distinctly above-average growth (roughly 40% and 35%, respectively) and yet lagged the broader market by a meaningful amount (9% and 13%, respectively). Both stocks may be basing, but investors will need to see some assurance in the next quarterly report (or two) to feel comfortable about pushing these stocks up again. (For more, see Investing In The Healthcare Sector.)

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Steel Dynamcis - Buy The Muddle-Through?

Just how healthy is the economy, anyway? Retailers have been seeing shoppers return to their stores, and railroads continue to see carload volumes increase, but banks are still struggling and non-residential building is all but asleep. Even aluminum is no help - Alcoa (NYSE:AA) is doing better, but some of that is because of more rational Chinese producers and a recovery in aerospace. It is a very muddled picture, then, for Steel Dynamics (Nasdaq:STLD) as this large mini-mill operator moves into the final quarter of the year.

The Quarter That Was
Steel Dynamics had previously guided third-quarter numbers down, but nevertheless managed to deliver results on the upper side of that range. For a "tough" quarter, sales were surprisingly strong - Steel Dynamics reported 35% revenue growth over last year on 5% higher shipment volume. On the other hand, sequentially, Steel Dynamics saw revenue fall 3% on 4% higher shipments.

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The Steel Sector: No Jam Today, But Maybe Tomorrow

Investors might feel like the White Queen is running the economy these days. There was good growth in the past, and a lot of people seem to be expecting it again in the not-so-distant future, but it is pretty hard to find in the present. With a series of pre-announcements over the last few days, the steel sector is definitely shaping up as a "jam yesterday, jam tomorrow, sorry ... none today" sort of sector right now. 

Steel Dynamics
To a certain extent, maybe Steel Dynamics' (Nasdaq:STLD) downward revision for the third quarter was not a big surprise. After all, analysts have taken down the numbers on this major mini-mill operator multiple times over the last three months and estimates are now about a third lower.

For the full piece:
http://stocks.investopedia.com/stock-analysis/2010/The-Steel-Sector-No-Jam-Today-But-Maybe-Tomorrow-STLD-NUE-AKS-X-CMC-VALE-CLF0917.aspx

Steel Dynamics Pitted, But Not Rusting

So, how is the economy doing, exactly? Alcoa (NYSE:AA) or CSX (NYSE:CSX) earnings may have you feeling optimistic, while earnings from major banks cast a pall over that scenario. In that context, maybe Steel Dynamics (Nasdaq:STLD) earnings are a perfect metaphor - they were good, but not great, and guidance was a little murky. 

The Quarter That Was
Steel Dynamics reported 5% sequential growth in revenue (to $1.63 billion) and earnings per share of $0.22. Both of these metrics were slightly below the average Wall Street analyst estimate; enough to be a mild disappointment, but nothing to panic about. 


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