Last tweeted these names back in February 2014.Goldmans called the potential rally in steel stocks correctly and
$X has had an amazing 45% run since end of July to $40.
$AKS has consolidated above $10, but may have further upside based on FV’s below.
$X FV=35 (17% 5Y Growth Rate) PX=40
$AKS FV=17 (16% 5Y Growth Rate) Px=10.5
$AKS has 50% more potential upside relative to $X.
Buy at 10.50, Take Profit Target $15.5, Stop 7.5
OR Wait for for AKS to consolidate above $11, then buy with TPP=$16 stop $8.
OR Wait for Credit Default Swaps to tighten in $AKS to under 300bp. The Credit is still a bit wide $AKS but has rallied 100bp since August, then pull the trigger if the stock is below $11.50.
2CentView has a core position in $AKS, and looking to add a trading position.
Approaching the $23 stop on US Steel, FV lower at $25 now.
$AKS – FV=15, so could re-enter at $6 if you sold at $8. Credit Default Swaps still imply debt is too high at $AKS – hence why stock is trading at such a discount to Fair Value.
If the CDS drops to below 400bp with Stock below $7 it is worth buying…
but investors not in love with US Steel stocks at the moment, even with the prospect of commercial and retail construction growth.
$AKS outperforming $X but this was certainly the more riskier of the 2 stocks, given cost of debt levels being twice as much as $X. Cost of Debt now come in nearly 100bp, which partly accounts for the better performance of $AKS. Take profit at 8 (FV=8.5) if you got in below 6.
I took more conservative position in $X which is also doing well but less risk. Higher the risk greater the reward – but also more to lose on the downside.
So don’t always think about the returns – think about the risk you are taking versus your return [ technically known as the Sharpe Ratio!]
$AKS has more potential upside by high debt levels – CDS Spreads in the 800 area indicates there is still high leverage/default risk.
Better opt forr US Steel, $X where FV=37 so still good upside potential, but lower debt levels CDS Spread = 400bp. If you think the US Steel market will recover, buy $X, tp=$35, stop $23 for 2:1 RR. Look at the stock prices in mid 2008 just before they fell off a cliff!
$X and $AKS up over 30% in past 2 months. $AKS FV=$9 $X=37 – so more upside. Check charts