Mooers' Investing Journal

Views 2.9M Contents 1083

As the industry frenzy comes to an end, which other stocks in the steel sector are worth choosing? #USstocks

逍遥投资派 joined discussion · Apr 27, 2022 21:58

The 89th original article from Xiaoyao Investment Club

US Stocks Daily Research 34: A look at steel stocks in the US stock market

As the industry frenzy comes to an end, which other stocks in the steel sector are worth choosing? #USstocks

Summary

The steel sector is currently in the peak period of the industry cycle. When choosing, do not be misled by short-term extremely high profits and very low PE ratios. Pay attention to solvency, shareholder surplus, and recent average profit.

Overall, the valuation is not high, a total of 5 stocks have been selected.

Steel sector investment index:⭐️⭐️

1. $Ternium (TX.US)$ ⭐️⭐️
2. $Algoma Steel (ASTL.US)$ ⭐️
3. $National Steel (SID.US)$ ⭐️
4. $ArcelorMittal SA (MT.US)$ ⭐️
5. $POSCO (PKX.US)$ ⭐️

Star rating description:
⭐️⭐️⭐️: Best choice, with obvious profit and growth advantages, at a significant discount.
⭐️⭐️: Value or price slightly lower than the best choice.
⭐️: Only suitable for certain investment portfolios, such as small cap stocks, high-growth stocks, crisis stocks, flawed stocks, etc.

Portfolio recommendations:
Investment amount based on star rating:e.g. 1 star $100, 2 stars $200, 3 stars $300-$400.
If less than 10, only choose to invest in 3-star rated index stocks.
If less than 30 stocks, then only choose to invest in index 2 star and 3 star stocks.
If more than 30 stocks, then 1 star to 3 star can all be chosen.

The analysis process is as follows 👇

Today is April 27, 2022, Wednesday pre-market trading, let's study the steel stocks in the US stock market. There are a total of 21 stocks, with market caps ranging from 30 million to 42 billion, of which 17 are above 0.3 billion, so let's study these 17 stocks.

Only 1 stock with a pe ratio less than 0 is losing money, and 1 stock has a pe ratio of 116, while the remaining 15 stocks have pe ratios between 2 and 11.8. From a profitability perspective, the entire sector is not valued highly.

But the steel industry is a typical cyclical stock, with ultra-low pe ratios combined with ultra-high net income, indicating the end of the industry cycle. Selecting carefully is crucial.

Let's first look at the only losing stock.

Algoma Steel（ASTL）是2021年10月上市的加拿大公司，财年在3月31日结束。2021年营收下降8.3%，营业利润已经扭亏达到了84.8 million，净亏损76.1 million。2022Q1、Q2、Q3的营收、营业利润和净利润相对2021年均有超大幅提升，前3季度（2021年3月31日至12月31日）累计盈利已经达到0.615 billion加元，即0.48 billion美元，如果和2021Q4，其实就是2021年一季度利润合并，2021年自然年净利润达到了0.715 billion加元，即0.56 billion美元，目前1.39 billion市值，相当于2.5倍市盈率。按每股收益计算市盈率为1.87。

利润表很简单，2021Q3多了个0.2 billion的重组费用，应该是上市花的，2022财年利润大概率会大幅转正。

经营净额在2021年勉强转正，2022年前三个季度都在净流入；自由现金流情况也类似，情况改善明显。

近期每年投资大概在0.1 billion左右，经营活动每季度就可以产生0.3 billion现金流，发展不成问题。

2021Q3资产负债率为66%，应收0.455 billion，存货0.62 billion，相对过去12个月的营收3.5 billion来说比例正常。长期借款0.523 billion，利息8千多万，相对过去12个月0.7 billion利润来看，比率不算太高。流动比率1.75，速动比率1，现金流还算安全。

The company's interest-bearing debt has decreased to less than 0.1 billion yuan, while cash is nearly 0.6 billion, which should be able to withstand future cyclical fluctuations.

Overall, ASTL is a company with significantly improved overall conditions, with both net income and cash flow improving significantly in the full year 2021. Due to the lack of long-term data as a new stock, careful selection can be made (⭐️).

Looking at the only stock that stands out in terms of the price-earnings ratio,

$Huadi International (HUDI.US)$Listed in 2021, financial report as of September 30. Overall revenue growth in the past three years, with a 10% decline in 2020; operating profit has sharply declined in the past two years, with a 44% decline each year, and net income declining slightly slower. The main reason for the profit decline is the decrease in gross margin, dropping from 22% to 18%, and then to 16%. Due to the lack of long-term data as a new stock, it is difficult to determine whether the decline in gross margin is cyclical or endogenous, so a wait-and-see approach is advisable.

Let's look at the 15 stocks with price-earnings ratios between 2 and 11.8, this price-earnings ratio seems to indicate that cyclical stocks have reached the end of their phase.

National Steel Company of Brazil (SID)Revenue maintained growth for 5 years, with a 59% increase in 2021; operating profit only decreased by 9% in 2019, with a 5-year average growth rate of 42%; net income fluctuated significantly, with a 5-year average net income of 5.1 billion.

Over the past 5 years, the gross margin has increased from 26.6% to 46.1%. The decline in operating profit in 2019 was due to other operating expenses of 0.74 billion generated in 2019. In 2018, this item was a net income of 0.87 billion, distorting the profit comparison of the two years. If taken into consideration, the operating profit has been continuously increasing over the past 5 years.

In 2018, there was another financial income of 0.94 billion, and other net income also reached 1.76 billion. Therefore, the net income was significantly boosted. In 2019, other financial expenses were 0.245 billion, other net expenses were 6.43, causing a difference of 3.6 billion in operating profit for the two years. Due to the interference of these miscellaneous items, plus steel being a typical cyclical stock, we calculate the P/E ratio at 5.1 billion Brazilian real, which is 1.02 billion US dollars based on the 5-year average profit.5.2。

The debt-to-asset ratio is 71%, with a normal proportion of receivables and inventory, a current ratio of 1.5, and a quick ratio of 1.

There has been very little investment in recent years, with enough cash generated from operating activities to cover, indicating no issues with development.

Long-term interest-bearing debt is 27 billion, short-term is 5.5 billion, cash is 19.3 billion, with a difference of 13.2 billion, indicating some risk.

Currently with a pe ratio of 2, the 5-year average profit pe ratio is 5.2, so it is advisable to choose cautiously (⭐️).

$Ternium (TX.US)$ It is a company from Luxembourg, with a revenue decrease of 11% and 14% in 2019 and 2020 respectively, while the growth in the other 3 years is relatively fast, especially with an 84% increase in 2021; operating profit dropped to 0.87 billion and 10.8 billion in 2019 and 2020, then surged to 5.3 billion in 2021, a similar trend is seen in net income. The 5-year average net income is 1.71 billion, corresponding to a 4.6pe ratio.

The gross margin curve is very similar to the operating profit curve, indicating that profits are mainly influenced by costs.

The income statement shows that the company has no interest expenses, but instead has over 50 million in interest income. In 2021, besides the increase in gross margin leading to higher operating profit, there was also a 0.4 billion yuan gain from equity investments. However, this only affected net income by 10%, showing that the main business remains the dominant advantage. The entire income statement looks very clean.

With an asset-liability ratio of only 28.4%, the asset quality is very good, with low levels of inventory and accounts receivable.

The interest-bearing debt of 0.66 billion is far less than the cash of 2.57 billion on hand.

In the past 5 years, the operating cash flow was 8.2 billion, with a total investment of 5.9 billion, half of which exceeded, resulting in less shareholder surplus.

Currently, with a P/E ratio of 2, an average P/E ratio of 4.6 over 5 years, a P/B ratio of 0.75 at a considerable discount, even though it is at the end of the cycle, you can still choose to (⭐️⭐️).

$ArcelorMittal SA (MT.US)$ Also a Luxembourg company, revenue decreased by 7% and 24.6% in 2019 and 2020 respectively, with rapid growth in the remaining 3 years, especially a 44% growth in 2021; operating profit was in loss in 2019 for 1 year, only recovered to 2.1 billion in 2020, surged to 17 billion in 2021, with a similar trend in net income, except that both 2019 and 2020 were losses. The 2020 net loss was due to a sudden increase in income tax to 1.67 billion.

5-year average net income of 4.5 billion, corresponding5.7times P/E ratio.

In 2021, the equity income reached 2.1 billion, an increase of 1.7 billion compared to 2020, but it did not have a significant impact within the 15.6 billion net income.

The asset-liability ratio is 43.3%, with annual interest and financial expenses reaching around 1 billion. Interest-bearing debt is 7.5 billion, much higher than the 4.2 billion cash, indicating a weak risk-bearing capacity.

Total investment in the past 5 years was 12.8 billion, total operating cash flow was 28.7 billion, with investments being less than half of the cash flow, resulting in more shareholder surplus.

Currently the P/E ratio is 2.1, the 5-year average P/E ratio is 5.7, the P/B ratio is 0.5, overall it can still be cautiously selected (⭐️).

$United States Steel (X.US)$Revenue decreased by 8.8% and 24.7% in 2019 and 2020 respectively, with rapid growth in the other 3 years, especially a 108% increase in 2021; operating profit was in loss in 2019 and 2020, sharply increased to 4.55 billion in 2021, similar trend for net income. 5-year average net income of 0.78 billion corresponds to P/E ratio.10.6United States Steel's gross margin is particularly unstable and very low. Before 2021, the gross margin ranged from 1.88% to 13.21%, increased to 28.3% in 2021, significantly impacting the operating profit. Starting from 2019, restructuring and M&A expenses have increased, and from 2020, impairment of capital assets has affected net income.

Native

Currently, the company has interest-bearing borrowings of 3.9 billion and cash of 2.5 billion, with weak risk resistance.

Total investments in the past 5 years amounted to 4.7 billion, with total operating cash flow of 6.66 billion. Investments exceeded half of the cash flow, resulting in relatively low shareholder earnings.

Currently at a P/E ratio of 2.1 times, with a 5-year average profit P/E ratio of 10.6, overall having limited attractiveness.

$Gerdau (GGB.US)$A company based in Brazil, with revenue declining only in 2017 and 2019 by 2% and 14% respectively over the past 5 years. The remaining 3 years showed high-speed growth, with a significant 79% growth in 2021. Operating profit saw a decline of 28% only in 2019, with high-speed growth in the other 4 years; While net income turned losses around in 2018, declined by 48% in 2019, and then soared in the following two years to reach 15.56 billion.

Average profit over 5 years was 4.2 billion reals, equivalent to 0.84 billion US dollars, corresponding to a P/E ratio.10.8times P/E ratio.

Asset liability ratio is 42%, accounts receivable, inventory, and revenue are relatively normal.

Interest-bearing debt of 14.1 billion, cash of 6.8 billion, with relatively weak risk resistance.

Total investment in the past 5 years was 5.3 billion, total operating cash flow was 24.6 billion, investment accounts for a very small proportion of cash flow, and shareholders have more surplus.

Currently at a PE ratio of 2.8 times, the 5-year average P/E ratio is 10.8, overall not very attractive.

$Olympic Steel (ZEUS.US)$Revenue has only declined in 2019 and 2020 in the past 5 years by 7.9% and 22% respectively, while the other 3 years saw high-speed growth, with a significant increase of 87.4% in 2021. Operating profit sharply declined in 2019 and 2020 for 2 years, then surged to 0.17 billion in 2021; net income dropped by 85% in 2019, was in a loss in 2020, and surged to 0.12 billion in 2021. The trend of the 3 lines is quite consistent, with minor fluctuations in gross margin.

The 5-year average net income is 0.034 billion, corresponding to a PE ratio of11.7times.

Currently having interest-bearing borrowings of 0.33 billion, cash of 9.8 million, with very weak risk resistance.

Total investment in the past 5 years was 0.12 billion, with a net outflow of 0.024 billion in overall operating cash flow, and there are currently no shareholder earnings.

Currently at a pe ratio of 3.4 times, with a 5-year average profit pe ratio of 11.7, overall not very attractive.

$POSCO (PKX.US)$ It is a company in South Korea, with an average net income of 3.17 trillion South Korean won over the past 5 years, equivalent to 2.5 billion US dollars, corresponding to a pe ratio of 6.7 times.

Debt-to-asset ratio is 40%, accounts receivable, inventory, and revenue are relatively normal in comparison.

Interest-bearing debt is 21.74 trillion, cash is 18.16 trillion, indicating a relatively weak ability to withstand risk.

Total investment in the past 5 years was 22 trillion, with an overall operating cash flow of 32.43 trillion. The investment accounts for more than half, resulting in relatively low shareholder earnings.

Currently at a pe ratio of 4 times, with a 5-year average profit pe ratio of 6.7 and a pb ratio of 0.4 times, overall a cautious choice can be made (⭐️).

$Cleveland-Cliffs (CLF.US)$The 5-year average net income is 0.95 billion, corresponding to a P/E ratio of 15 times. Currently at 5 times P/E ratio, the 2 times P/B discount is not sufficient.

$Steel Dynamics (STLD.US)$The 5-year average net income is 13.1 billion, corresponding to a P/E ratio of 12.7 times. Currently at 5.6 times P/E ratio, the 2.6 times P/B discount is not sufficient.

$Timkensteel (TMST.US)$The sum of net income for 5 years is a loss, currently at 6.5 times P/E ratio, 1.4 times P/B ratio valuation is too high.

$Nucor (NUE.US)$The 5-year average net income is 2.64 billion, corresponding to a P/E ratio of 15.8 times. Currently at 6.8 times P/E ratio, the 2.7 times P/B ratio valuation is too high.

$Schnitzer Steel Industries (SCHN.US)$The 5-year average net income is 0.087 billion, corresponding to a P/E ratio of 14.7 times. Currently at 8 times P/E ratio, the 7 times P/B ratio valuation is too high.

$Reliance (RS.US)$The 5-year average net income is 0.75 billion, corresponding to a P/E ratio of 15.4 times. Currently at 8.5 times P/E ratio, the 1.9 times P/B ratio valuation is too high.

$Grupo Simec (SIM.US)$The 5-year average net income is 3.31 billion Mexican pesos, equivalent to 0.161 billion US dollars, corresponding to a P/E ratio of 28 times. Currently at 9.7 times P/E ratio, the 2.2 times P/B ratio valuation is too high.

$Commercial Metals (CMC.US)$The 5-year average net income is 0.215 billion, corresponding to a P/E ratio of 22.5 times. Currently at 11.8 times P/E ratio, the 1.7 times P/B ratio is not very attractive.

Welcome to follow for easy-to-understand investment methods, updated daily 📈

Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more

See Original

Report

94K Views

Comment

逍遥投资派

578

Followers

Following

3180

Visitors