Gerdau’s Steel Balloon Sinks


Jim Jubak Image Jim Jubak Founder and Editor,

After a big run-up this year, macroeconomic news and a poor earnings report has dropped the Brazilian steelmaker almost back to where it started, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks.

It’s pretty much what you’d expect in first-quarter earnings from a steel exporter in the current global economy. But after a 20% gain in 2012—more than twice the 9.6% pickup in Brazil’s Bovespa index—what you’d expect wasn’t good enough.

Shares of Brazil’s Gerdau (GGB) fell 2.3% on May 3 after the company reported earnings. The New York-traded ADRs then traded down another 4.4% on May 4 as the US market sold off on a disappointing April jobs report.

And today, May 8, Gerdau is down another 4.3% on the sell-off prompted by another turn of the Greek and Spanish debt crisis. (Gerdau is a member of my Jubak’s Picks portfolio.)

All this hasn’t taken Gerdau quite back to where it was on December 30 ($7.78). But at $8.275 at 2 p.m. on May 8, it isn’t all that far away.

Let me begin with the company’s first-quarter earnings report as the foundation for my suggestions of what to do with this stock. (Now, now, nothing quite that impolite.)

Gerdau reported first-quarter 2012 net income of 370 million reais ($192 million). That was even with the fourth quarter of 2011, but down 5.4% from first-quarter 2011 net income of 391 million reais.