The Price? A "Steel"

01/07/2005 12:00 am EST


Price Headley

Founder and Chief Analyst,

While most noted for his trading strategies and shorter-term technical expertise, Price Headley is equally adept at longer-term, fundamental analysis. For his Top Pick, he turns to a steel stock that he feels is poised to benefit from long-term economic factors.

"Schnitzer Steel (SCHN NASDAQ), a basic materials company, will benefit from two dimensions of our current economic situation. First, if inflation is high, then the price of steel goes up. In addition,  Schnitzer will benefit from continued GDP growth. As the economy keeps expanding, industrial companies are going to need more and more supplies and raw materials to keep cranking out cars, planes, bulldozers, etc. In turn, that manes steel (and iron, and other materials) will be in high demand.

"The attraction to Schnitzer is also based on its fundamentals. It’s a downright bargain right now, with a p/e of 9.8. The forward-looking p/e is 7, so even if the company does only half as well as expected, it will be still be cheap in comparison to its earnings. Revenue is growing at 38%. Schnitzer's chart also looks poised for a solid move higher. While a base has been established around 27 for most of 2004, the shares have been quietly inching higher. The stock crossed above the 200 day line in October, and found support there again in November. It wouldn’t be surprising to see shares hit 60 within a few months."

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