Vale SA (ADR) (NYSE:VALE) is trading at only 16.5 times its earnings, versus the 172.4 times industry mean, while offering a projected dividend yield of 4.78% and an EPS growth rate expected at 13% annually over the next five years. I’d recommend buying and holding this stock, as upside potential is bound to come.
Companhia Siderurgica Nacional: A company to keep an eye on
After a very weak first quarter, Companhia Siderurgica Nacional (ADR) (NYSE:SID)‘s stock price is close to its 10-year low, trading at only $3.38 per share. Despite its low pricing, several concerns about future profitability remain, mainly due to the cyclicality of the industry, the risks associated with the ongoing diversification of activities at Companhia Siderurgica Nacional (ADR) (NYSE:SID), and the political and currency volatility in Brazil. Although I would advocate holding for now, especially as the two aforementioned companies offer clearer outlooks, I would also recommend not losing track of this firm’s activities and stock, as upside is not at all unlikely.
One of the main reasons to believe that this company will deliver strong results in the years to come is the increasing demand for steel, both locally and globally. Furthermore, Companhia Siderurgica Nacional (ADR) (NYSE:SID) has been reducing its dependence on steel production by entering other segments, like mining, which accounted for approximately 26% of 2012’s total revenue. Several investments are to be made soon in order to increase production capacity. For 2013, capex allocated for expansion plans will be roughly $1 billion (about R$2.2 billion).
Moreover, the company has managed to reduce the competition it faces while expanding its margins by high value-added steel products.
Apart from organic growth, acquisitions have driven expansion in the past and will most likely continue to do so. Some important recent ventures include mills in Indiana, Portugal, and Germany. In addition, vertical investments in mining, electricity, and transportation will reduce costs, thus driving profit even further.
Even in spite of its ill-looking financial figures, Companhia Siderurgica Nacional (ADR) (NYSE:SID) deserves your attention. As its balance sheet improves, more alluring entry points should show up and you wouldn’t want to miss them, especially with its stock priced so low.
Bottom line
Although Vale SA (ADR) (NYSE:VALE) trades at higher P/E values than Gerdau SA (ADR) (NYSE:GGB), it also offers a lower beta ratio and slightly higher consensus estimate growth rates. However, both provide plenty of upside potential for investors and are, therefore, interesting long-term investments. Companhia Siderurgica Nacional (ADR) (NYSE:SID) is a hold for now, but I advocate not losing sight of this company, as upside potential could appear any time soon and you might want to catch it before the stock price starts rising.
The article Invest In These 3 Brazilian Steel Companies originally appeared on Fool.com and is written by Damian Illia.
Damian Illia has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
