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Barton Biggs came out Thursday and said he expected the market to pull back 5% to 7% in the short term due the problems in Europe and as the market tires from a significant rally over the last six months. I agree with his prognosis, and I am looking forward to deploying some of my dry powder and picking up some better bargains in the months ahead. One stock I am looking at already has been cut in half since it highs this summer due to the poor outlook for steel, especially in Europe. I think the selloff is bit overdone, and that the stock will be winner from these levels over the medium term.

AK Steel (AKS) - "AK Steel Holding Corporation, through its subsidiaries, produces flat-rolled carbon, stainless and electrical steels, and tubular products in the United States and internationally". (Business description from Yahoo Finance)

7 reasons AKS is a solid long term buy at $7 a share:

  • The mean price target for the 14 analysts that cover the stock is just over $10 a share, which is significantly above the current stock price.
  • The company sells for just 13% of annual revenues which is at the bottom of its five year range based on that metric.
  • Construction is showing signs of life for the first time since 2008, which should provide a major boost to the steel sector. Improving auto production should also boost steel makers.
  • Low natural gas prices are reducing operating costs and S&P also expects a gradual decline in health and pension costs going forward as well as benefits to some of the company's internal sourcing efforts.
  • The company has rapid earnings growth ahead of it according to analysts. The company lost 14 cents a share in FY2011, but it is projected to earn 54 cents in FY2012 before more than doubling earnings to $1.25 a share in FY2013. Downward earnings revisions have slow over the last week and may be stabilizing.
  • The stock is cheap at under 6 times forward earnings and just over 2 times the company's peak earnings in 2007. It also yields 2.6%.
  • AKS is building a technical support base at these levels (See Chart)

(click to enlarge)

Source: 7 Reasons To Buy This $7 Stock On Any Pullback