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AK Steel: Prime Opportunity Or Potential Value Trap?

Mar. 08, 2018 10:07 AM ETAK Steel Holding Corporation (AKS)MT, NUE, STLD, X16 Comments


  • AKS has had a mixed 2017 and is off recent highs.
  • AKS may offer a strong steel investment with potential.
  • The steel industry is showing cyclical strength.
  • Does AKS offer a good entry point for value investors.

AK Steel (NYSE:AKS) has been a favorite component pick of mine for years in the steel sector and commodity related investments, but has been underperforming its peers in the last couple of steel-related market rallies. I want to explore the relative value of the stock at these levels, and what we can expect to see from AKS as we move forward into an environment that should be more favorable to steel stocks in general. Is AK Steel an overlooked value play at these levels, or are we looking at a stock that has been held back by the market for very apparent and valid reasons?

Steel Sector Rallies

There have been a few steel rallies in the trailing 18 months, the first initiated around the time of the Trump election in the U.S. and the belief in increased infrastructure spending. One way to watch steel movements across the industry is watching the action in the VanEck Steel Sector ETF (SLX) which displayed a growth trend in steel starting in January of 2016 and accelerating through February 2017. Another way to watch steel broadly is through the SPDR S&P Metals and Mining ETF (XME) which illustrated the same price action that SLX exhibited in the same timeframe. Having come off a general decline in steel and commodities beginning in mid-2014, this was a welcome turn for commodity and value investors alike, and signaled that China in particular was likely not dropping off a precipice as had been partially feared.

After seeing the sector dropping somewhat in the beginning of 2017, we saw a general strength returning to the sector throughout 2017 with a renewed vigor coming in late 2017 as steel pricing improved, the U.S. Budget talks solidified, infrastructure became a priority in Congress, and new talks supporting a domestic steel tariff surfaced from

This article was written by

I am a personal investor with a long-term investing outlook and a focus on buying value in the market with a secondary goal of pursuing growth. I have been investing for more than two decades and have background experience in ETF, Mutual Fund, Stock and Commodity investing. I am a proponent of the principles espoused by Benjamin Graham and to a lesser extent John Bogle and Warren Buffett.

Analyst’s Disclosure: I am/we are long AKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

AKS is basically a honeypot for executives and fraudsters to raid at will. Every time the honeypot is about to flow over they empty it again and force the owners–shareholders to start over. This is a company that will be bankrupt with the next small recession. AKS "glory days" began a few years ago and with historic auto sales and are coming to an end. Permanently short it.
If you think AKS is disappointing, look at SWN and GME. These two have disappointed me over and over. AGI, TAHO, and SBGL are disappointing their shareholders as well. I guess it is time to buy them if you don't already have some shares. AG and EXK are two more.
Nucor and Steel Dynamics have historically been strong stocks. But lack volatility. X and AKS are the way to play steel. You are in it for the capital appreciation and not the dividends. You forgot one thing: NAFTA talks in terms of auto parts. You got some inside info? :)
wait for the ER and you'll see again and again
The Investments of Ellis Wyatt profile picture
I am not selling, though perhaps I should. News has been mixed, some good info here: https://seekingalpha.c...
rnn profile picture
Thought you to sell on good news..not just hold on for more.
Now negative news affecting them...
Potential value trap , or dead money, as a best case scenario.

The car market is lagging.
AKS will go down to hell once again and again
zzz this stock.is gonna fly, it's amazing that there.still.even in business,after years of China selling steel here for below what it costs to produce it go Ak and US steel ,Trumps best move ever
The Investments of Ellis Wyatt profile picture
Not sure the move by Trump will help/hurt them in both the short and long-run. We'll know in 2 quarters if there has been help on the short side, and within a couple years we'll see if the US domestic market has built any capacity. Typically controls and protection don't make individual companies stronger,
Agree with your guarded AKS assessment. Management is very poor, and the worldwide steel glut (and dumping) doesn't help. Share dilution plus huge debt load (in the face of rising IR) are anathema to this investor. Trump import taxes, if enacted, would certainly help AKS both directly and potentially indirectly (by bringing more car manufacturing back to US). But that's not nearly enough for AKS to prosper among cut throat competition, and the specialty steel comp can expect little benefit from US infrastructure projects, even if enacted. Stay away from AKS!
The Investments of Ellis Wyatt profile picture
I am not yet convinced that mgmt. is 'very poor' however I am watching to see what they do in favorable conditions. It seems clear that they have some work to do on the balance sheet, and it remains to be seen if the recent acquisitions and investments will yield the required fruit. Lets see what happens, but definitely not a done deal.
Roger Newport has done an excellent job under the circumstances. I guess many shareholders are very annoyed that AKS issued more shares when the stock was surging around a year ago. Doing this reduced debt, which was important for the long term strength of the company.
The Investments of Ellis Wyatt profile picture
I was annoyed at the stock issuance yes, but I agree that the focus on debt is a positive. Hence why I feel AKS is a bit of a mixed bag at this point. We will see if these efforts can gain traction.
thanks for article, AKS should do ok. price target of 6.50 to 7.0 is my target as well. I sold covered calls at 7 when the stock was trading over 6 bucks before earnings. Bought in at 4.50. Buying and selling this stock for a few years. As long as the entry price is 4.50 to 5 bucks usually average around 20 to 30% return. I would not expect to get rich on this stock, more meat and potatoes.
The Investments of Ellis Wyatt profile picture
Thanks yviktor8. I have been doing much the same with this stock, and I think you are right to call it 'meat and potatoes'.
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