Watch These Stocks at Goldman's Steel Conference
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Goldman Sachs is hosting its annual Steel Conference this Tuesday Nov. 27 and Wednesday Nov. 28 in New York. Since inception in 2005, the conference has solely focused on investment opinions, market trends, and perspectives for the steel industry, however Goldman decided to broaden the conference for 2012 to include metals and mining.
Here is my synopsis on a select few of the Companies presenting, and which details investors should be looking to hear from management.
Cliffs Natural Resources (NYSE: CLF) Tuesday at 3:15 p.m.; The Cleveland, Ohio iron ore producer announced on November 19 a delay in expansion at its Bloom Lake mine in Quebec, Canada while also choosing to idle production capacity at one of its U.S. operations. The decision seems to be largely based on maintaining adequate financial reserves following continued weakness in iron ore prices. Shares fell nearly 12% on November 20 following a downgrade at Goldman to Sell from Hold, hitting their lowest level since October 2009. Unlike steel prices, which are expected to increase in 2013, Cliffs has significant exposure to iron ore prices which may see downward pressure due to increased North American capacity. While over the long-term shares of CLF may contain tremendous upside (i.e. stabilization in iron ore prices, possible takeover bid), I would use any near-term strength following the conference as a selling opportunity.
Reliance Steel & Aluminum (NYSE: RS) Wednesday at 1:45 p.m.; This small-to-mid cap service center of steel and aluminum represents a more attractive investment opportunity than producer U.S. Steel (NYSE: X) which is also presenting at this year’s Goldman conference. As a metals service center, Reliance buys metal from producers such as U.S. Steel and then subsequently sells it to individual companies, which utilize metal in the production of their end products. Although an indirect comparison, shares of Reliance Steel have outperformed U.S. Steel over the past 12-months, and I expect the trend to continue going forward. The reasons for this are as follows: 1) Reliance’s earnings are more correlated to the underlying steel price vs. U.S. Steel, 2) Reliance is growing as the metals service center industry consolidates (two recent acquisitions in October), while U.S. Steel is more concerned with cost containment related to production, and 3) Reliance enjoys a higher operating margin through distribution than U.S. Steel does in manufacturing. Credit Suisse maintains an outperform rating and $65 price target based on 6.8x their 2014 earnings.
Nucor (NYSE: NUE) Wednesday at 11:15 a.m.; The Charlotte, North Carolina headquartered Company recently announced on November 16 that Dan DiMicco, the popular Chief Executive of Nucor who has served as CEO since September 2000, will be succeeded by current President and COO John Ferriola. Nucor shareholders enjoyed a 463.9% total return under DiMicco’s stewardship (approx. 38% per annum). While I do not expect this leadership transition will have a strategic impact on Nucor’s long-term goals, I will be listening to their Goldman presentation for any details. Nucor continues to have industry-leading metrics including the highest return on invested capital at 17.5% annually from 2004 through 2011. In addition, its diverse product mix among steel and its manufacturing flexibility should serve shareholders well into the next decade.
Steel Dynamics (NASDAQ: STLD) Wednesday at 7:30 a.m.; Shares of the Fort Wayne, Indiana based Company began rising on November 6 when competitor AK Steel announced it would be increasing the price of all carbon steel products by $50 per ton. Wall Street viewed the increase by AK Steel as price leadership among the group, and Steel Dynamics followed through with its own $35 price increase, notifying its customers the week of November 19. Steel Dynamics has grown to become the fifth largest American steel Company, and leads the industry in metrics such as profit margin and income per ton of steel shipped. It is second only behind Nucor in the industry for return on invested capital, with an impressive 15.4% average annual ROIC. Shareholders of Steel Dynamics have not received an update from management since the Company reported Q3 earnings on October 17.
Inquiring readers may download a complete agenda for the two-day conference here.
johnmacris has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!