POSCO And Russel Metals: Two International Steel Stocks Worth Buying

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 |  Includes: PKX, RUSMF
by: Stan Stafford

Overview

The steel industry has been in a state of flux the past few years. Overcapacity, large swings in demand, and international concerns (especially with China and Europe) are just a few of the issues that it continues to face. However, there are several positive factors that appear to be helping the steel industry move in the right direction (booming auto industry, housing recovery, and rising global demand, for example).

So the question becomes, if you believe the steel market is on the right track, which stocks do you want to hitch a ride to? There are plenty of steel stocks available to choose from both domestically and internationally. In this article, I will be looking at and reviewing two internationally based steel stocks that I think are worth considering as buys. In determining why I like the stocks, I will be looking at each company's history, current valuation and stock price movement, financials, earnings, and company outlook.

Stock #1

POSCO (NYSE:PKX) manufactures and sells integrated steel products in South Korea and internationally. It is the third largest steelmaker in the world in terms of market value. PKX was founded in 1968 and is based in Seoul, South Korea.

Financial Performance

Profit Margin 3.41%
Return on Assets 2.20%
Return on Equity 4.48%
Revenue 54.89B
Revenue per share 44.02
Quarterly Revenue Growth -4.55%
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PKX has seen some recent struggles in terms of increasing revenue, but remains one of the most efficiently ran steel producers out there. Because of this, the company has a long history of increased long term revenues and profits.

 

 

  2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Revenue 59.35B 59.67B 42.04B 31.73B 33.32B 33.87B 26.88B 26.11B 22.55B 15.61B
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Current Valuation and Recent Trading Activity

PKX has a current price-to-earnings value of 14.21x and a price-to-book value of 0.64x with earnings per share of $5.19.

PKX closed Wednesday at $74.53, $12.51 shy of its 52-week high and $12.23 higher than its 52-week low. It is trading higher than both its 200-day moving average of $72.21 and its 50-day moving average of $72.75.

Earnings

Just like with its revenue, PKX's earnings have recently taken a hit. Earnings have fallen significantly the past two quarters, mainly attributable to the double digit decline in revenues.

Company Outlook

Warren Buffett owns shares of PKX and described the company in the following way:

It's a great company. And great companies get worth more and more all the time.

According to World Steel Association, the outlook for steel appears fairly bright with global consumption increasing 2.9% this year and 3.2% next year. PKX appears primed to take advantage of this and attempt to reverse its recent poor performance in revenue and earnings.

As PKX continues its expansion internationally (like with its new plant in Turkey and its partnerships with Brazilian Vale and Dongkuk Steel mill Co.), I believe that its long term success will continue. The company has plenty of short term concerns, but I think increased exposure to growing markets (Europe, Russia, Middle East, North Africa, etc.) will lead to increased revenues and earnings over the long term. Considering its current price and the fact that the company currently pays roughly a 2% dividend that appears pretty safe, I think PKX is worth looking at as a buy for long term investors who believe in the future of the steel industry.

Stock #2

Russel Metals, Inc. (OTCPK:RUSMF) is a metals distribution & processing company. RUSMF main business is steel, although it operates in the following three segments: metals service centers; energy tubular products and steel distributors. The company was founded in 1929 and is headquartered in Mississauga, Canada.

Financial Performance

Profit Margin 2.78%
Return on Assets 4.81%
Return on Equity 10.09%
Revenue 3.03B
Revenue per share 11.86
Quarterly Revenue Growth 4.03%
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Since 2009, RUSMF has seen significant increases in both revenue and profit.

  2012 2011 2010 2009
Revenue 3.02B 2.64B 2.18B 1.87B
Gross Profit 516.24M 505.73M 414.48M 155.68M
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Current Valuation and Recent Trading Activity

RUSMF has a current price-to-earnings value of 18.35x and a price-to-book value of 1.82x with earnings per share of $1.35.

RUSMF is trading at $24.80, $5.11 shy of its 52-week high and $2.24 higher than its 52-week low. It is trading below both its 200-day moving average of $26.14 and its 50-day moving average of $25.41.

Earnings

Since 2009, RUSMF has shown positive earnings but has been unable to keep a positive growth trend.

  2012 2011 2010 2009
Net Income 99.33M 115.95M 57.31M -87.23M
EPS Diluted 1.65 1.88 0.96 -1.46
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Company Outlook

RUSMF announced the completion of the installation of a Butech Bliss state-of-the-art Synergy™ hydraulic roller leveler to its heavy gauge cut-to-length line at its B&T Steel division in Stoney Creek, Ontario. The upgrade will allow RUSMF to provide superior quality products with industry leading flatness.

With RUSMF's recent dividend, the stock now yields over 5%. The company has a diverse set of operations and with recent strategic moves (such as the acquisition of Apex distribution last year), I believe that the company will take full advantage of an uptick in the steel industry.

Conclusion

The steel industry appears to be in the midst of a rebound with projected demand increases for this year and next. How big and how long the rebound remains is still uncertain. I believe that the two companies listed above (PKX and RUSMF), are primed for future success as this rebound occurs. Both companies have seen short term drops in earnings, but both companies are making strategic moves to reverse this trend by improving their production and distribution capabilities.

The long term future of steel remains unclear as the industry is still facing severe problems in China and countries throughout Europe, but I feel that PKX and RUSMF are both capable of weathering any short term storms. Of the two companies, I feel that PKX is the safer bet, while RUSMF currently offers a higher yield. Nevertheless, I think both stocks are worthy of consideration for long term investors looking at the steel market.

I plan on following this article up next week with a review of two domestic steel stocks that I find attractive. As always, I suggest individual investors do their own research before making any investment decisions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.