Arch Coal Inc (ACI), Mechel OAO (ADR) (MTL): Can You Take Risks With an Undervalued Miner?

In the case of Arch Coal Inc (NYSE:ACI), the negative PEG ratio is probably because of pessimism related to thermal energy and coal exports. With an increased suspicion towards nuclear energy after the Fukushima disaster, countries like India and China may import more coal than they do right now. Then the negative PEG ratio will turn positive.

Arch Coal has a market cap of $885 million and an enterprise value of $5 billion. Before investing, you might also want to bear in mind that this is a company with a total debt of $5 billion.

United States Steel Corporation (NYSE:X) is one of the largest steel producers in the world. However, it has a PEG ratio of -1.12, making it negatively valued just like Arch Coal. With a profit margin of 0.12% and an operating margin of 1.16%, it is certainly not one of the most profitable companies right now.

The European economy, reduction in Chinese demand for steel and falling consumption rates in the U.S. have all contributed to United States Steel Corporation (NYSE:X)’s woes. United States Steel Corporation (NYSE:X)’s second quarter earnings will likely be just as dismal, thanks to the reasons I just mentioned. No wonder no one expects United States Steel Corporation (NYSE:X) to have good earnings, resulting in a negative PEG ratio.

However, the fruits of optimism and risk-taking will be its own reward. As construction projects expand across emerging nations, United States Steel Corporation (NYSE:X) will find its market grow. Now is perhaps the best time to invest in these undervalued and troubled mining companies as they are likely to rebound in the future.

My Foolish bottom line

If you are willing to take risks and invest in a company that has access to Russian minerals and metals, look no further than Mechel. It is undervalued at the moment but has a lot of support within the Russian government. If you would rather invest in American companies, Arch Coal and U.S. Steel maybe better options but they are riskier options.

Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Jaiyant is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Can You Take Risks With an Undervalued Miner? originally appeared on Fool.com is written by Jaiyant Cavale.

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