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Shares of steel producer AK Steel Holding Corp (NYSE:AKS) are trading sharply lower Monday, at a new 52-week low, following a downgrade from Goldman Sachs.

(click to enlarge)AKS ChartAKS data by YCharts

(click to enlarge)AKS ChartAKS data by YCharts

Secular Issues

Much of the decline in AKS over the past year has been a result of weak steel prices. Similarly, shares of almost all other major steel companies including United States Steel Corp (NYSE:X), Arecelor Mittal (NYSE:MT), and Steel Dynamics (NASDAQ:STLD) have declined over the past year.

(click to enlarge)AKS ChartAKS data by YCharts

Debt

One of the reasons Goldman downgraded AKS is the company's "highly leveraged balance sheet." Currently, AKS has $1.1 billion in debt compared to $576 million in equity. Also, AKS has just $42 million in cash right now. Given the difficult steel markets, it may become difficult for AKS to pay its debt.

Short Interest

Short interest in AKS currently stands at 31 million shares or 28.5% of the float. If steel prices increase, or positive news comes out on AKS, the potential for a short squeeze does exist.

Dividend

AKS currently pays a dividend of 20 cents per share or 3.45%. However, given the difficult business environment, I do not believe the company will continue paying its dividend.

My Take

Despite AKS hitting new 52 week lows, I would avoid the name. The economic weakness in Europe and China makes it unlikely that steel prices will move higher anytime soon. For investors looking to buy into the steel sector, I would consider buying stronger, more well capitalized, companies such as Nucor (NYSE:NUE).

Source: AK Steel Hits New 52-Week Low: What You Need To Know