Tuesday, April 30, 2013
Steel stocks- poised for recovery
In addition to SSteel, I believe that we can consider other steel stocks for medium to long-term investment due to the improvement in the industrial outlook. I have tabulated a few steel stocks for consideration.
Table: Steel stocks' valuation
I have highlighted the stocks with dividend yield ('DY') exceeding 5%; PE below 10 times; and PB below 1 time. All the stocks are trading at PB below 1 time. Three stocks have DY exceeding 5% (Annjoo, CSCStel & SSteel). Out of the 3 profitable steel producers (Masteel, SSteel 7 CSCStel), only one stock is trading at PE below 10 times (that's Masteel). Masteel & CSCStel remained profitable in FY2012 as they have small exposure to the steel wire rod sector that was badly affected by dumping activities. As such, they will not benefit as much as from the anti-dumping move by the government as the other steel stocks.
Chart 1: Perwaja's wdaily chart as at April 29, 2013 (Source: quickcharts)
Chart 2: Kinstel's daily chart as at April 29, 2013 (Source: quickcharts)
Chart 3: Masteel's daily chart as at April 29, 2013 (Source: quickcharts)
Chart 4: CSCStel's daily chart as at April 29, 2013 (Source: quickcharts)
Chart 5: Annjoo's daily chart as at April 29, 2013 (Source: quickcharts)
To ride on the recovery of the steel stocks, we need to position in stocks that had been deeply oversold, such as Annjoo and Masteel. Masteel is trading at a low PE because investors are not avoiding the stock due to its venture into a monorail project in Johor Bahru. This new venture entails different kind of risk and investors are worried that the company might fail in that venture.
Annjoo is a strong steel company, which had done very well when steel product cycle recovers.It is forming a base at RM1.20 - albeit trading below that level in the past few days. Is this a breakdown? Can it recover above the RM1.20 mark again? If it can stay above RM1.20 mark, Annjoo could be a good stock to get into for the recovery play in steel iron rod & related steel-based building material.
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Annjoo, Kinstel, Perwaja, SSteel, Masteel & CSCStel.