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A fall in scrap metal prices has scared investors away from Schnitzer Steel Industries (SCHN), pushing the metal-recycler's share price down by more than 50%, to $58.30 as of Friday's close. Concerns about slowing growth in emerging markets have not helped either. But Barron's Christopher Williams says Schnitzer is far from junk and is a good long-term bet on a price recovery in scrap metals, even with scrap prices unlikely to retake earlier highs anytime soon.

Schnitzer is expected to post earnings of $200M ($6.85/share) for the fiscal year that just ended, with revenue of $3.5B. Many expect the global economy to begin to level out next year, which could help Schnitzer's shares rise to the mid-to-high $70s. Schnitzer is less vulnerable to the earnings volatility typically associated with traditional steel producers, and its access to deepwater ports lets it export scrap more cheaply than most of its rivals.

The industry is under pressure to continue consolidating, making Schnitzer a potential takeover target. Bob Richard, of Longbow Research, thinks a takeover bid could be as high as $150/share, and that the buyer could be a foreign company from Asia or Russia.

Brian Culpepper, of James Small Cap Fund, says "the company has good overall fundamentals, and the stock is oversold," and has added Schnitzer to the fund's Buy list.

Source: Don't Recycle Schnitzer Steel Yet - Barron's