Billionaires Betting On Small Steel: AK Steel (AKS) Versus United States Steel (X)

Page 1 of 2

What’s the best way to play a potential turnaround in the steel industry? Well it’s not the company you would think. United States Steel Corporation (NYSE:X) is considered the bellwether of the steel industry, but we believe AK Steel Holding Corporation (NYSE:AKS) is the best bet in this space. Cliff Asness of AQR Capital also thinks so and is the top fund owner of AK Steel – owning 4.3% of the steel company. AQR upped its stake over 60% last quarter, along with other notable billionaires, including Ken Griffin, Steve Cohen and Israel Englander (check out Israel Englander’s newest picks).

AQR CAPITAL MANAGEMENT

Steel volumes are expected to be up in 2013 on the back of rising U.S. GDP and robust auto sales. Further helping boost the industry should be bullish demand from the construction industry, as a turnaround in real estate gains traction. Standard & Poor’s expects steel consumption to be up 7% in 2013, and also anticipates an increase in auto sales in 2013 to 15.4 million units, from 14.4 million units projected in 2012.

We believe that other top competitors just do not have the same prospects that AK presents, including US Steel, Steel Dynamics, Inc. (NASDAQ:STLD), Ternium S.A. (NYSE:TX) and ArcelorMittal (NYSE:MT).

US Steel has the lowest expected EPS growth rate of the five steel stocks with a 7% CAGR and its valuation is less than stellar at 15x forward earnings – in line with its historical P/E. The steel company does have more international exposure than AK Steel, but we do not like its tubular-related products exposure. Almost 20% of revenues for the first nine months of 2012 were in its tubular segment, which has vast exposure to the oil and gas markets. As a result, US Steel is more dependent on the number of oil and gas wells drilled, and can easily see demand impacted by new drilling and storage techniques. AK Steel only derived 2% of its revenues from tubular over the same period. Billionaire Jim Simons was one manager betting on US Steel in 3Q 2012 (check out Jim Simons’ top picks).

AK has seen the same pressures, if not more, as other steel companies: The S&P Steel Index was down 11% through mid-December 2012, where the S&P 1500 was up 13%, but AK Steel was down almost 50%. Over the last five years, the steel stock is down 90% and has seen earnings decline at a 50% compounded annual growth rate over that same period.

With all the negative pressure and poor historical performance, why invest?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!