4Q Results for 3 Names I Follow.

Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In this post I will try to review the 4Q results posted by some companies I always follow: Arcelor Mittal (NYSE: MT), British Petroleum (NYSE: BP) and AK Steel (NYSE: AKS). Only BP and AK Steel are already a part of my equity portfolio, though I have written many times about Mittal and I follow this company very closely. Let's start reviewing BP's financial results and comments from management, followed by Mittal and Ak Steel.

BP is, according to management, starting a new era defined by (1), the near end of its conflict with the US government and (2), an asset base that is smaller but also has better growth prospects. Management also stressed how the $38 billion disposal target was successfully achieved one year before the planned scheduled date. Not everything was just words. There were some good surprises on the earnings side too, such as the 21% EPS beat. Nevertheless, BP still seems to be trading at a fairly cheap level. Valuation stands at 5.2x EV to 2013 EBITDA and 11.6x P/E (while paying a 4.9% cash dividend yield) reflecting how worried investors still are about the potential coming liabilities from the oil spill.

The reason is simple. After 12 months and more than $13 billion in settlements with private sector plaintiffs and the US government over criminal charges, the company still faces huge claims. BP admitted that gulf coast states and towns affected by the spill have claimed more than $34 billion under the Oil Pollution Act on top of up to $21 billion in Clean Water Act penalties sought by the federal government. Most analysts are not bullish on the name.

I am long on BP shares because I think that, in the end, BP will finish its legal conflicts and the company will manage to come back to growth. After all, BP will spend over $24 billion a year in its capex program and, after the disposals, there are many valuable assets left in very different geographic areas. I am sure 2013 will be the last year with a Year over Year (YoY) fall in production and I am also convinced BP will be able to close its TNK-BP sale to Rosneft before the end of 2013.

The steel industry is a different story, but I am also bullish on it

I am not alone. Lakshimi Mittal, Arcelor Mittal's chairman, said he was positive about his industry. That said, at the time he was making those bullish predictions, his company was announcing a $3.7 billion loss for 2012. His theory is simple. Even if demand in Europe will continue to be weak, China's growth and Brazil's growth should come back in 2013. Arcelor Mittal's chairman also thinks the US market for steel should get substantially better as the housing market recovers. As a matter of fact, and even if Europe is home to some of the company’s biggest plants, the company said it expected its steel shipments to rise 2% to 3% in 2013 after a 2.3% fall last year. In consequence, Mittal's earnings will improve substantially this year and the company will continue reducing its debt pile (now standing at $21.8 billion). There is a lot of room for improvement for Arcelor Mittal shares. After all, last year's loss is mainly explained by a huge ($4.3 billion) goodwill write down. It will not happen again.

AK Steel is a different story

It's almost purely a US bet and that’s the reason why I am long on both sides of the capital structure (debt and equity). The company is getting better and better. AK Steel not only has a $1.1 billion liquidity window, but also is investing for growth and to reduce its cost matrix (the company will have over $150 million in cost savings this year). This year will finally be a profitable one (I expect AKS to earn $0.20 per share in 2013 after its $0.50 per share loss in 2012) as a consequence of its growing presence in the resilient automotive market.  In AK Steel's case, the theme is growth and I think US macro fundamentals are poised to help the company and its management after many steps in the right direction.

BP, Arcelor Mittal and AK Steel are three companies I have followed closely for a few years now. After a lot of thinking I decided to make a move in two of these companies. In order to make a bet in Mittal I would like to see the strategy for its ailing European operations. I will keep a close eye into these three names. I hope I am not wrong. If I am, then I will be here to write about my mistakes. 


Fool blogger Federico Zaldua own shares in AKS and BP but does not own any MT shares. The Motley Fool owns shares of ArcelorMittal. 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!

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