AK Steel Again Looks Like A Great Buy

| About: AK Steel (AKS)

As a daily follower of AK Steel (NYSE:AKS), I am constantly aware of when the stock has reached what I consider a low point. Last year in October, I wrote an article when AK Steel was trading near the level that it is right now. I am confident that the stock will make another relatively quick move up in price per share in the near term.

AK Steel 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.

AK Steel is currently trading at $8.19/share. The 52-week range is $5.51 - $17.19.

52wk high: 17.19
52wk low: 5.51
EPS: -1.41
Div Rate: 0.20
Yield: 2.46
Market Cap: 903.15 M
Volume: 7.37 M

While I also like Arcelor Mittal (NYSE:MT), Alcoa (NYSE:AA) and U.S. Steel (NYSE:X) as long call option plays at their current prices, I really feel AK Steel provides the best possible return on investment.

AK Steel is a very volatile stock, which is one of the reasons I use it for my daily options trading strategy. AK Steel has a current beta of 2.75, which is considered very high. Analysts have a varying price range on AK Steel, but almost all have this stock well above where it is currently trading at.

Price Target Summary

Mean Target: 11.02
Median Target: 10.50
High Target: 14.00
Low Target: 7.00
No. of Brokers: 14

17-Jan-12 Downgrade Deutsche Bank Buy → Hold $13 → $10
30-Sep-11 Initiated Longbow Neutral
15-Aug-11 Downgrade KeyBanc Capital Mkts Buy → Hold
11-Aug-11 Initiated UBS Buy $12
27-Apr-11 Upgrade Dahlman Rose Hold → Buy $22
12-Jan-11 Downgrade UBS Neutral → Sell $13 → $13

Even the latest downgrade by Deutsche Bank has the estimate going from $13.00/share to $10.00/share, which would still be a nice increase from current levels. It looks as if the economy is finally starting to improve. You can bet that steel stocks will reap the rewards, and AK Steel could prove to be a huge winner for you at its current price. It should also be noted that AK Steel has been rumored for years now as a possible takeover target by a major steel company. If and when this happens, it should bring a nice premium.

To be conservative with this trade and to let it develop, I recommend purchasing June 2012 $10.00 strike call options. The current bid/ask spread is $0.27 - $0.30. I can easily see AK Steel trading above $12.00/share by that time, if not much higher.

Disclosure: I am long AKS, MT.

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Tagged: , , Steel & Iron, Options
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