ArcelorMittal (ADR) (MT): What’s In Store For This Steel Giant?

Steel industry’s Major Players

The largest steel producer in the United States, Nucor Corporation (NYSE:NUE), is trading at a forward P/E (1yr) of 12.05x and has a dividend yield of 3.10%. A mean recommendation of 2.2 on the sell side clearly shows that it’s one of the top buys in the steel industry. Using earnings multiple, I’d value Nucor at $55; hence, it’s undervalued by almost 20%. This makes Nucor one of the most attractive buys in the steel industry. You can have a further look at my detailed take on Nucor Corporation here.

On the other hand, United States Steel Corporation (NYSE:X) is trading at a forward P/E (1yr) of 9.61x and has a dividend yield of 0.90%. A mean recommendation of 2.9 on the sell side testifies the fact that the company isn’t an attractive buy at this stage. Using earnings multiples, I value U.S. Steel at $23, which shows that it’s trading at its fair value. My comprehensive analysis on U.S. Steel Corporation can be found here.

Conclusion

A sluggish Chinese economy and lower than expected consumption in the European market were the chief culprits behind a lackluster year for the steel giant. 2013 looks to be a relatively better year, but not by a great margin. As Europe still faces more steel production than demand, prices are expected to remain on the low end. China looks to be in a better shape as demand is expected to improve slightly this year. As far as the U.S. is concerned, the recent boom in the automotive sector will have a positive effect on the steel industry. However, the recent European defense cuts haven’t helped the cause. Moreover, with the looming risk of U.S. defense cuts, things still look bleak for the steel industry. ArcelorMittal’s high beta of 2.43 reflects its dependence on macroeconomic forces, showing that it’s one of the most cyclical stocks in the steel industry. The bottom line is that the steel industry is expected to perform better than it did in 2012, but it still needs more time to recover, and so does ArcelorMittal. In short, I still remain neutral on this steel giant.

The article What’s In Store For This Steel Giant? originally appeared on Fool.com and is written by Waqar Saif.

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