Cyclical stocks have hammered their investors mercilessly over the last few months on slowing European economic activity and worries about a slowdown in China. The steel sector has been one of the hardest hit areas sectors within the cyclical space. Nucor's (NUE) disappointing guidance recently hurt the entire sector. However, for long term investors the industry is entering steeply overvalued territory and providing compelling entry points. One stock that I like here because of its rock bottom valuation, recent insider buying and one of the best ticker names on the exchange is Olympic Steel (ZEUS).
"Olympic Steel engages in the processing and distribution of metal products in the United States. It offers flat products and tubular and pipe products, including processed carbon, coated, aluminum and stainless flat-rolled sheet, coil, and plate; and metal tubing, pipe, bar, valves, and fittings and fabricate pressure parts." (Business description from Yahoo Finance)
7 reasons ZEUS is a solid long term bargain at just $16 a share:
- Myriad insiders bought over $1mm in new shares in May.
- The stock is selling near the bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
- The acquisition of Chicago Tube and Iron last year increased the company's exposure to the fast growing domestic energy sector. It now generates over 30% of its net profits from this division. The company could also eventually be the beneficiary of low natural gas prices as a key energy cost input.
- The stock is extremely cheap at just 58% of book value and 13% of annual sales.
- The stock is considerably under analysts' price targets. The median price target on ZEUS is $31 a share by the 5 analysts that cover the stock, almost double the current stock price.
- The stock has a five year projected PEG of under 1 (.89) and a forward PE of just over 6 which is sharp discount to its five year average (17.3).
- It is now trading at a level it bounced up from during the last market swoon last summer (See Chart)
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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ZEUS over the next 72 hours.
