ArcelorMittal’s primary weakness is its balance sheet. Competitors, like Nucor Corporation (NYSE:NUE), have far healthier balance sheets than the company, which affords them a great deal of flexibility during downturns.
The advantage of a strong balance sheet is evident in Nucor’s recent activity and plans for the future. While ArcelorMittal struggles to avoid breaching its debt covenants, Nucor is on the hunt for acquisitions. The company can both pick up market share and become a fully-vertically-integrated steel producer.
The acquisition of a scrap processing business has already allowed Nucor Corporation (NYSE:NUE) to improve its competitive position during the current downturn, and it will likely add other businesses to its portfolio in the near future.
However, with only $18 billion in revenues over the last four quarters, Nucor’s operations are only a fraction of ArcelorMittal’s $81 billion business. As a result, the company does not pose a significant threat to the latter’s market share.
ArcelorMittal (ADR) (NYSE:MT) is the largest company in an industry where scale is the primary competitive advantage. Steel prices are in the dumps right now, but ArcelorMittal has most to gain when they finally turn up again. At less than half of book value, the stock is too cheap for long-term investors to ignore.
Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Nucor. The Motley Fool owns shares of ArcelorMittal. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Stock Is Too Cheap to Ignore originally appeared on Fool.com and is written by Ted Cooper.
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