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Very few sectors were hit harder in the last half of 2011 than the steel industry. Equities in the sector were crushed on concerns about slowing worldwide growth, Europe and overcapacity. However, if the economy manages to improve and concerns about China and Europe subside in the coming months, numerous stocks in the sector could have a huge pop back at some point in 2012. Here are two that I like at current price levels.

United States Steel Corporation (X) produces and sells steel mill products in North America and Central Europe. It operates in three segments: Flat-rolled Products (Flat-rolled), U. S. Steel Europe (USSE), and Tubular Products (Tubular). The Flat-rolled segment offers slabs, rounds, strip mill plates, sheets, and tin mill products, as well as iron ore and coke.” (Business description from Yahoo Finance.)

  • Performance YTD*: -56.34%
  • Current Price: $25.67
  • Consensus Price Target: $33
    *Compared to S&P

Key value observations on X:

  • The stock looks like it is building a technical base at these levels (see chart):

  • It is selling at the bottom of its five year valuation range based on P/S and P/B.
  • U.S. Steel is selling at 10 times forward earnings, 19% of sales and 89% of book value.
  • The company would be a primary beneficiary if domestic car sales continue to improve and the economy can find a sustainable rate of growth.
  • X is selling at 1.5 times peak 2008 earnings.

AK Steel Holding Corporation (AKS), through its subsidiaries, 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.” (Business description from Yahoo Finance.)

  • Performance YTD*: -50.50%
  • Current Price: $8.15
  • Consensus Price Target: $10.60
    *Compared to S&P

Key value observations on AKS:

  • The stock is selling in the bottom third of its five year valuation based on P/S, P/B and P/CF.
  • AKS is selling at the same levels that numerous insiders bought new shares at over the summer.
  • The stock looks like it is bottoming at current levels (see chart):

  • The company is selling at just over 2 times its peak earnings of $3.46 in FY2007.
Source: Two Steel Stocks That Could Recover Well In 2012