3 Steel Companies to Watch Out For in 2013

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

One sector that hasn't seen a lot of good performers in 2012 is the steel sector. Low consumption, demand for steel, continuing troubles in Europe, and the problem of overcapacity resulted in a lackluster year.

Will 2013 be the same? Well, that remains to be seen. But if so, there are a few steel companies that can earn you some big bucks this year.

Safe Bet

One stock that has proved its mettle in this sector, time and again is ArcelorMittal (NYSE: MT). What makes this company stand out is its consistent performance at the stock market.

On January 2, the steel giant announced its plan to sell 15% interest in its subsidiary ArcelorMittal Mines Canada (AMMC).  According to the deal, AMMC entered into a joint venture with a consortium led by Korean steel company Posco (NYSE: PKX) and Taiwan's China Steel Corporation that will now own  ArcelorMittal's Labrador Trough iron ore business.  Expected to be completed by the second quarter of 2013, the deal was made in order to help cut down ArcelorMittal's debt obligations by $1.1 billion. At present, the deal is dependent on clearance by the Government of Taiwan.

The company was in the news recently, following an announcement that $4.3 billion will be written off as goodwill in its European businesses in the fourth quarter of 2012. There has been a reduction in its cash flow expectations. Further, earlier in 2012, the company announced a cut in its annual dividend for 2013 by $0.55 to $0.20.

Korean Dream

As for Posco, it is one of the world's largest steel producers. This deal can only help its situation by providing access to essential raw materials. The company has a lot of scope for growth, given its position in China, and is all set to expand its infrastructure in 2013. The stock has risen by nearly 20% in the last month and a half. However, trading at a P/E of 2.6, the stock still looks pretty cheap.

Going Up!

Another steel company that can look forward to a good year ahead is US Steel (NYSE: X). On January 2, company received an upgrade from Credit Suisse. Its price target was raised from $20 to $30/share. The estimate of its 2013 earnings has gone up by $0.24 to $1.72 per share. This news came right after the fiscal cliff drama, when the US markets witnessed a rally in stocks. The upgrade was based on an expected rise in steel prices worldwide, driven by higher demand for cars. Following the news, stock prices of the company rose by nearly 7.5%.

Wrapping It Up

The steel sector can look forward to a better year ahead. Worldwide demand for steel should go up, as would steel prices.

Despite the situation in the steel sector last year, ArcelorMittal has held its ground. In the long run, the company plans to expand the operations of AMMC. Furthermore, the stock is believed to be undervalued and I believe it has a lot of upside potential in the times to come.

Posco has high potential for growth, especially in China and other emerging markets. Future global expansion plans and cost reducing efforts make this an attractive stock.

Similarly, US Steel should do well in the year ahead. The Credit Suisse upgrade, coupled with increased demand for automobiles should help this stock surge.

I would give the buy signal for all three of these companies!

sonamchamaria has no positions in the stocks mentioned above. 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!

blog comments powered by Disqus