AK Steel Holding Corporation (AKS), ArcelorMittal (ADR) (MT): What Could Happen if Things Start to Go Well for Steel?

Two alternatives for those with less risk appetite

The two major competitors include United States Steel Corporation (NYSE:X) and ArcelorMittal (ADR) (NYSE:MT), which are both much larger than AK Steel.

United States Steel Corporation (NYSE:X) does have pretty high debt levels and pension/healthcare liabilities, but not to the extent that AK Steel does. I would consider United States Steel Corporation (NYSE:X) to be just slightly less risky of an investment than AK Steel, and it should be approached with almost the same level of cautious optimism, in my opinion. There is also a great deal of uncertainty among those analysts following the company, and next year’s estimates range from a loss of 40 cents per share to a profit of $3.00 per share, a huge range.

ArcelorMittal (ADR) (NYSE:MT) is in a class by itself in terms of its size, and by market cap is more than 40 times larger than AK Steel. The company is the world’s largest steel producer, and is actually ranked number 70 on Fortune’s list of the world’s largest corporations. As would be expected with such a large company, there is an added degree of stability and financial strength associated with ArcelorMittal (ADR) (NYSE:MT). In fact, ArcelorMittal (ADR) (NYSE:MT) is the only one of the three that is expected to produce an after-tax profit this year. While ArcelorMittal (ADR) (NYSE:MT) offers considerably less upside potential than the other two, there is also much less potential for a further collapse.

Final thoughts

While I believe that the vast majority of any investor’s holdings should be in companies much less speculative than those listed here, it is completely reasonable to allocate 5-10% of your portfolio to companies like this that could produce dynamite gains if things go right. I will rarely write about risky stocks worth speculating on, but I sincerely believe that AK Steel Holding Corporation (NYSE:AKS)’s current risk/reward ratio is extremely favorable, and could pay off many times over if things begin to go right for the industry.

The article What Could Happen if Things Start to Go Well for Steel? originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel owns shares of AK Steel Holding and United States Steel (NYSE:X).. The Motley Fool owns shares of ArcelorMittal. Matthew 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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