Is it Worthy to Buy SunCoke Energy (SXC) Shares?

Steel City Capital, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 8.4% was recorded by the fund for the full year of 2021. This compares to its benchmarks, the S&P 500 and Russell 2000 Index which had 26.9% and 14.5% returns respectively for the same period. During the year, the Partnership’s long book contributed 9.2% to returns. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Steel City Capital, in its Q4 2021 investor letter, mentioned SunCoke Energy, Inc. (NYSE: SXC) and discussed its stance on the firm. SunCoke Energy, Inc. is a Lisle, Illinois-based raw material processing and handling company with a $636.4 million market capitalization. SXC delivered a 16.24% return since the beginning of the year, while its 12-month returns are up by 22.36%. The stock closed at $7.66 per share on February 15, 2022.

Here is what Steel City Capital has to say about SunCoke Energy, Inc. in its Q4 2021 investor letter:

Suncoke owns five cokemaking facilities in the U.S. capable of producing 4.2 million tons per annum (mtpa) of blast furnace coke. Coke is a key raw material used in the process of producing steel via the blast furnace method. In addition to its cokemaking operations, SXC owns a collection of marine terminals, the largest of which is the Convent Marine Terminal (CMT) in Louisiana. CMT has the capacity to transload 15 mtpa of coal and other industrial materials. In 2020, CMT accounted for 55% of U.S. thermal coal exports from the U.S. Gulf Coast and 15% of total U.S. thermal coal exports.

While the broader steelmaking industry recently benefitted from all-time high steel prices, resulting in record production levels, growing cash flow, and improving balance sheets, SXC has continued to trade with a free cash flow yield in excess of 20%, reflecting considerable concern about the company’s prospects. I believe there is a broad misunderstanding of the SXC story driven in part by shallow analysis of the company’s business model and cash flow prospects. I believe fair market value ranges from $14-$17, representing upside of 84-122% from current levels. What’s more, SXC represents an attractive takeout target for industry-consolidator Cleveland Cliffs (CLF), which at a minimum provides downside protection, but also offers a potential catalyst for value realization in the future. ” (Click here to see the full text)

Our calculations show that SunCoke Energy, Inc. (NYSE: SXC) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. SXC was in 19 hedge fund portfolios at the end of the third quarter of 2021, compared to 19 funds in the previous quarter. SunCoke Energy, Inc. (NYSE: SXC) delivered a 18.21% return in the past 3 months.

In August 2021, we published an article that includes SXC in the 10 Russell 2000 Basic Materials Dividend Stocks to Buy. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.