The Panic-Proof Portfolio (Stockchase Research)Algoma Steel Group IncASTL.TOPAST TOP PICKApr 11, 2023

A speculative choice, not sleep-at-night, but intriguing. USMCA is coming up for renewal, with intense pressure from industry to get tariffs down and return to some semblance of a reasonable NA economy. 

Big question is how will Trump respond (and that's why it's speculative :). No dividend.

He always likes to look at the sector first. SLX is the US ETF that covers the whole steel sector. You want to see how your stock is trading relative to its sector. ASTL wouldn't be his top choice. If the sector's doing OK, but a name isn't performing, you have to ask yourself if you really want to be there.

But the sector itself looks really interesting. 

Example of a stock that's a really tough call right now, simply because current business outlook is so absolutely miserable. But this is actually when he starts to get interested in companies -- when you have the worst-case situation.

He recently started buying IFP.

Go back to the 2017 timeframe and look at the last time he did this with steel and aluminum. Cheap for a reason. Need a high tolerance for risk and volatility to put a position on right now. These names are down, compared to US names that are up (today in particular).

There's an opportunity there, but don't rush in today. Get closer to where there's some sort of resolution.

XME was among the strongest performers this morning, up almost 7%. Some view that protectionism would be good for the NA steel producer. Cyclical, fits the inflation theme. Hasn't done a lot of work on this one, but technical setup is good.

ALC is kind of a 'sleeper' stock, offering not much excitement but a low valuation and decent dividend. There is little growth, though, and 2025 estimated earnings will be below the level of 2021. It also has a fairly levered balance sheet. We have always thought it would make a good privatization candidate, but that is not enough reason to give it a strong endorsement. We would not miss it if sold. 
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EPS of $0.24 missed estimates of $0.3067 and revenues of $732.6M beat expectations of $692.38M. Revenue of $732.6M, increased from $599.2M, and income from operations rose substantially. Its Adjusted EBITDA margin shrunk from 13.8% in the prior year to 11.1% in the recent quarter. Its results were negatively impacted by declines in steel prices due to labor stoppages at auto manufacturers in the US. Management expects a recovery in steel demand and pricing, however. Its balance sheet expanded, and its free cash flow grew. This was an OK quarter, and share prices are largely unchanged. It trades at a decent valuation of 0.4X forward sales and 7.1X forward earnings and pays a dividend of 2.7%. It may hover around these prices until a recovery in steel demand and pricing returns.
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Commodity cycle is key input for steel sector.
If economy is expanding, good time to buy steel companies.
Expecting a hard recession, so would not recommend buying.
Wait to buy when market/economy has fallen more.

Been pressured in recent months. The market is pricing in a recession risk later this year. Wouldn't sell it now. Trades at a discount. Wait and see how things develop.