Stelco Holdings Inc. (STLC.TO) Buy, Sell or…

Stelco Holdings Inc. (STLC.TO)

68.14

-0.28 (0.41%)

as of Nov 4, 2024, 9:00:00 pm Market Open.

110 watching

SELL

The chart looks horrible, but volume is starting to flow. 80% of investors have lost money here in the past two years. It hasn't found a bottom. It's slid from $15 to $11.83. Don't even look at it, unless it rises above $12.50. Sell, if you haven't already. Minimize your losses.

BUY

It kind of trends down since January, but it isn't terrible. The picture generally is pretty positive. A year from now we will have some inflation and it will break out above $16. It is a good risk/reward to take a shot at some of these names.

DON'T BUY

The trade war with America is likely over. Their chart doesn't scream buy, though. A poor chart, actually.

COMMENT

It's at the whims of the steel price. Good management generates good cash flow and have two special dividends in the past year. Prem Watsa has invested in them. They seem to be hunting for an acquisition, but higher steel prices or big capital deployment will move the stock higher.

PARTIAL BUY

He hasn't owned this for a while. $14 is the floor. Start with a half position and if it breaks upwards, add to it. Enter it now.

SELL

There's a storm cloud over Stelco. Ottawa was supposed to protect the company and sector from US tariffs, but Ottawa just realized the cost of that protection and withdrew it. The upshot: a decline in STLC's NAV from 21 to 17, and EBITDA margins shrinking from 16.5% to 11.3% (a 32% decline in EBITDA--not good).

PAST TOP PICK

(A Top Pick Oct 02/18, Down 36%) Fear of an economic slowdown has pressured steel prices and stock. But stell prices are still strong historically. You can make money off this at the $30 price in the coming years. STLC plan to sell 100% of their products to Canada which will avoid the US tariffs. In the last quarter that figure was 90%.

DON'T BUY

Don’t buy now. Mainly because of uncertainty surrounding steel and aluminum tariffs. Canada’s cyclicals have been beaten down, so there could be value, but economic growth will slow somewhat. This would be a value trap.

DON'T BUY

The tariffs are still on, which doesn't help them short-term. They do have a better balance sheet now, but the steel sector is heading into a downturn with weaker demand from China. Stelco will do better than its peers, but the sector will weaken. Trading at 4x forward earnings.

TOP PICK

A short-term investment. The steel market is now strong. Stelco re-IPO'd last November. Has little debt and cleaned up its employee pension obligations. There are healthy margins in steel now. Good cash flows. Just paid a special dividend which could become an annual event. (1.8% dividend, Analysts' price target: $33.17)

PAST TOP PICK

(A Top Pick Feb. 8/18, Up 6%) They emerged from bankruptcy with a clean balance sheet, new management. Trump has created a stronger steel market and this one benefited from a rising steel price.

TOP PICK

If we learned anything about tariffs, it is lumber. STLC-T's pension liability is gone and they have a clean balance sheet. They have the ability to increase capacity. They remind him of the lumber debate. (Analysts’ target: $33.50).

COMMENT

They flushed a lot of the liabilities with the IPO recapitalization. Trump gave them a present announcing higher tariffs and that put a tailwind behind the commodity. Wildly cyclical and too much outside of their control. It could have a good short-term performance. Not a good long-term company to own.

TOP PICK

Emerging from bankruptcy and doing a great job at eliminating their debt and restructuring. Clean balance sheet now. Going forward he sees growth in new products with high margin. Attractively valued at mid-single digits EBITDA. Steel prices improving helps them. (Analysts’ price target is $26.25)

DON'T BUY

They have totally different management. A good decade ino the past until it was up and trading. There were a lot of industrial companies in Canada in the late ‘90s and early 2000s. You are seeing a resurgence in the industrials. China has been the big importer of industrial steel and they just held a big party conference. It might be that you will see a slowdown in industrial products. There may be pressure from decreasing Chinese orders coming down.

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Stelco Holdings Inc. (STLC.TO)