AK Steel (NYSE:AKS) produces flat-rolled carbon, stainless, and electrical steels, and tubular products in the United States and internationally. It manufactures flat-rolled carbon steels, including coated, cold-rolled, and hot-rolled products; and specialty stainless and electrical steels that are sold in hot band, and sheet and strip forms.
AK Steel has had a wild ride so far this year. From its peak of $17.88/share on February 8, 2011 to its low of $5.51 on October 4th, there has been no shortage of volatility with this stock. AKS is currently trading at $7.65/share after Tuesday's market open.
|Market Cap:||953.79 M|
All steel stocks have been really hit hard by market condition over the last few months. This includes Alcoa (NYSE:AA), United States Steel Corp. (NYSE:X), and Arcelor Mittal (NYSE:MT). All of them are trading at the lower-end of their 52-week range.
AK Steel has a beta of 2.79, which is exceptionally high. While not a good choice for the conservative investor, AKS does offer significant upside with risks.
Currently, there is a short float of 21.8%. The short ratio is 2.27. There has been a nice run-up in the stock over the last few weeks, but has again dropped after Tuesday's earnings release. However, I feel that it can go a bit higher than where its currently trading at.
|Oct 24, 2011||8.16||8.65||8.12||8.65||10,115,083|
|Oct 21, 2011||8.22||8.25||7.89||8.05||7,195,721|
|Oct 20, 2011||7.67||8.02||7.53||8.01||10,106,729|
|Oct 19, 2011||8.03||8.03||7.64||7.70||9,536,692|
|Oct 18, 2011||7.24||8.14||6.99||8.06||18,735,995|
|Oct 17, 2011||7.43||7.43||7.05||7.15||6,185,373|
|Oct 14, 2011||7.56||7.66||7.35||7.52||5,617,298|
|Oct 13, 2011||7.32||7.46||7.05||7.38||5,581,930|
|Oct 12, 2011||7.27||7.63||7.22||7.48||8,501,137|
|Oct 11, 2011||6.94||7.32||6.90||7.17||8,073,162|
|Oct 10, 2011||6.92||7.15||6.85||7.07||6,038,875|
|Oct 7, 2011||7.08||7.15||6.56||6.67||9,644,570|
|Oct 6, 2011||6.85||7.10||6.72||6.97||9,424,671|
|Oct 5, 2011||6.39||6.87||6.22||6.77||11,931,216|
|Oct 4, 2011||5.68||6.34||5.51||6.32||12,777,069|
Here is an interesting chart that shows its upside potential with clearly room to go higher. There is also downside risk, as well:
This chart shows a nice upward movement forming. While I do not think it will reach those highs in the $16- $17/share range, I can easily see AKS trading for $11+ a share.
On Tuesday morning, AK Steel reported their third-quarter earnings that saw that its losses narrowed as higher prices offset a drop in steel shipments. .Steel also said "challenging global economic conditions have created strong headwinds for our company," They did not did not give a financial forecast for the final three months of the year.
If you are willing to take on some heavy risk with a high reward, call options going forward with March 2012 strike prices are very cheap right now after this latest earnings miss. A trade that I am going to initiate is to buy more calls than puts. At its current price, AKS does have some appeal here. I will open up a position with March 2012 $10.00 strike calls. In addition, I will also purchase March 2012 put options with a $5.00 strike as a minor hedge against those calls, with a 3:1 call/put ratio.
Additional disclosure: I will be buying March 2012 options with calls favoring a 3/1 ratio.