Insteel Industries Inc (IIIN): Does It Take Nerves Of Steel To Invest In This Stock?

AK Steel has a strong sector focus, deriving close to half of its revenue from the automotive market. Its advanced high strength steels help its customers reduce vehicle weight to meet the Corporate Average Fuel Economy (CAFE) requirements. Similar to Nucor, AK Steel Holding Corporation (NYSE:AKS) has various vertical integration initiatives in place to ensure the supply of inputs. For example, AK Coal Resources, which owns more than 20 million tons of met coal reserves, will commence mining in the second quarter of this year, with the eventual aim of meeting at least half of AK Steel Holding Corporation (NYSE:AKS)’s met coal needs.

AK Steel is loss-making for the trailing twelve months and will be excluded in the valuation comparison. Insteel Industries is valued at a higher forward P/E, but lower PEG, compared with Nucor. Based on Yahoo Finance analyst estimates, Insteel Industries is expected to grow EPS at a five-year CAGR of 33%, given a low earning base post Global Financial Crisis.

Conclusion

In a cyclical industry like steel, dividend-paying stocks with strong balance sheets are a safer bet. Insteel Industries Inc (NASDAQ:IIIN) is debt-free and sports a forward dividend yield of 0.6%. While the dividend yield may seem meager, it does not take into account special dividends that were paid in 2008 and 2012, respectively. In addition, laws and regulations protecting domestic producers like Insteel Industries have helped it to fend off some hostile competition in the past.

The article Does It Take Nerves Of Steel To Invest In This Stock? originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Nucor. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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