Steel May Be the New Gold
08/06/2008 12:00 am EST
Timothy Lutts and Paul Goodwin of Cabot Wealth Advisory, see good fortune for a Chinese steel manufacturer.
China's appetite for steel is enormous, gobbling up about one-third of the world's output every year (According to the National Bureau of Statistics, China's consumption for steel grew by 19.6% in the first six months of this year-Editor). The country is also no slouch as a producer, turning out about a third of the world's yearly total (263 million tons from January to June 2008-Editor).
In an environment of consolidating giants and government planning, General Steel Holdings (NYSEArca: GSI) is a midsized ($1 billion in revenues) steelmaker that has found a profitable strategy and is growing strongly. And it is one of the largest non-government-owned steelmakers in China. The company is thriving by acquiring rivals and installing Western-style management to increase efficiency.
General operates through three major subsidiaries. Tianjin Daqiuzhuang Metal Sheet makes hot-rolled carbon and silicon steel sheets that are used to make tractors, agricultural vehicles, and shipping containers. Baotou Steel Pipe makes spiral-weld steel pipes for oil and natural gas and petrochemical markets. Longmen makes pig iron, crude steel, re-bar, and wires.
For a company like General to break out of the pack, there must be a distinguishing advantage, and the income statement would indicate that management is making the difference. The company's managers have shown that they can deliver on their strategy of growing through acquisition, with significant EPS increases along the way (Although climbing steel prices have recently depressed quarterly earnings, somewhat-Editor)."
I look at the chart and I see a stock that came public in October 2007, peaked at $19 two days later, coinciding with the broad market's top, and then declined to build a broad bowl formation that bottomed at $6. When Paul Goodwin recently wrote about the stock, it was selling at $13 and trending up. (It closed at $13.77 Tuesday-Editor.) I think it will hit its old high of 19 in time, and eventually break out to new highs.