You bring up some excellent points that should serve as due warning to the extreme risk with AKS. When I last checked in early June, AKS had $3 billion in debt and $50 million cash on hand. They also had $4 - $5 billion in asset worth. I imagine they are servicing debt with cash on hand, which is diminishing at some rate due to no net earnings. This MUST bring up the specter of bankruptcy.
AKS for me is sheer speculation. Funny enough, my 1000 shares I bought yesterday are now up 18%. Volatile much? Wow!
I'm gambling on the government intervening just in time. Mind you, I'll probably add stops to secure some profit. Normally I am value investor, but I use a small % of my portfolio to gamble this way.
Lastly, I don't agree with you that there is no way for AKS to make money. Again, if the government intervenes, it should change the equation. Steel isn't pot, where it can be shipped in and delivered clandestinely.
You all make some good points about volatility. Not to get into an ideological war, but I don't believe in technical analysis. Yes, it works, but I see this as coincidental luck, failing more often than not.
Regardless, I correlate volatility to the crisis in China and the associated commodity crash, not to mention steel dumping. There are some signs we are getting nearer to fleshing things out. If so...then AKS becomes a cyclically positive play, meaning it's time to be an investor.
Again, I just can't see it swinging wildly like it did at the end of 2013...not unless there are solid fundamentals...which is what I am looking for.
Last point of clarification: I concede that AKS is for me a speculative investment right now. Not a value play. I don't wager most of my portfolio on stocks like this one...but I'm hopeful that things will turn around and that AKS won't go belly up.
I remain confident that the next 18 months we'll see $65/share. If higher, all the better. In my book, CBI remains one of the most compelling companies out there right now.
We're due for a cyclical bear. China has crashed. Commodities are plunging. There's an oil price war.
Aggregate corporate earnings however, have grown 6%+, if you take out energy. That speaks to the strength of the secular bull market we're in...which should commence once the cyclical bear issues are resolved.
As it does, CBI will positively correct.
$10 to $11 a share? Look, I get that there's a lot of wishful thinking on Yahoo message boards. But a near 4x bagger in a few months is beyond wishful.
I'll be content with AKS simply turning business around. I just SPECULATIVELY bought 1000 shares. I'll be adding more if I see business conditions improving.
I bought 1000 shares of AKS at $2.80 today. And 400 shares of MT at $8.98 a few weeks ago. I've spent $6k of $20k I have allocated for steel, so I'll add opportunistically, with discipline.
China is experiencing a massive crash. Their excess is flooding the market. Iron ore has near bottomed. Global economies look set to enter a cyclical bear market. Suffice it to say, commodities are under severe pressure...and aside from oil, which is obfuscated due to the Saudi price war factor, I think we're at a near bottom.
Today's earnings makes me more comfortable that AKS won't go belly up. It should weather this storm and get back to a fair valuation, once the steel cycle ramps up again. And it will, given that I fully believe we're in the earlier stages of a longer term secular bull market. Things just have to sort themselves out. I have no pretense of knowing how long this will take...but I like to think I'm buying deep value in AKS and MT with my recent purchases.
Lastly, as I've posted before, I think steel is a matter of national security. I have no crystal ball, but I have to believe the US government won't let our steel companies go out of business...although I admit this doesn't preclude bankruptcy. But all in all, I think we're past the point of insolvency being likely.
It's a guess. A pure guess. We have no real mathematical basis for determining this.
In contrast, there is lots of math supporting TRN as value: PE, PEG, PS, PB, ROIC, cash flow, and balance sheets. It's valuations are well below trailing N year averages.
How do you ever put odds on how a lawsuit will go? Maybe I'm more cynical as I get older? But I am deeply suspicious of a legal system and a government that has allowed what to me seems like a greater degree of corruption than ever before.
A lot of financially pressed interests see TRN as a convenient target. I won't rest easily until this is fully resolved...albeit I am holding my shares through it...on a pure hunch that all will be ok. That's all I have...a hunch.
The market is broken. Not CBI. I'll chime in again with my usual mantra: price must track earnings.
I still believe this is a great time to accumulate CBI. I'm averaged in at $61 or so, a basis of $25k. I remain confident if beating the S&P500 within 18 months. At the very least, I believe the price of oil will stabilize during this period, helping CBI to normalize...and I also believe overvalued social, mobile, and cloud computing companies will have faced their day of reckoning as well...further reinforcing companies that really make money.
Stocks trade with greater volatility that is more quickly moved by sentiment. Right now sentiment is suspect about CBI. But as I said, strong fundamentals will correct what I think is the irrationality of the herd here, not to mention wall street rigging.
Coincidentally, it's the same with steel. I bought into MT. I'm looking hard at AKS, NUE, and X. Although, to be fair, some of these steels can go bankrupt during this cyclical crash of steel.
All the best.
I kept my shares. But I have no illusions about foresight. Like you, I'm getting lucky...especially that the lawsuit isn't materializing into anything concrete yet.
I hope it stays that way. If so, sure, TRN is a serious long term winner. But the winds of politics can turn quickly. And TRN hasn't extricated itself from these winds.
I'm up 2x. I was once up near 4x. I'd love to see that again. Fingers crossed.
I bought some MT. Mostly because it is too big to fail for within the EU. It will indeed be supported by the EU. And it is globally diversified with decent ongoing cash flow. It was almost a no brainer for me to make a bet...as I'm fairly confident it won't go belly up, withstanding the current downturn in the steel cycle.
But AKS and X are a different story. I really like the idea of buying AKA. I really want to believe that the US government sees steel as a matter of national security. And that it would prop up domestic steel.
But unlike with Europe, I'm not so sure our government will do anything. Therefore, the specter of bankruptcy is not insignificant with AKS.
Make no mistake about it, dumping is occurring. Steel is under severe pressure. Ironically, it's low energy prices that made it worse for American steel makers. Higher energy costs favored our companies, due to the emergence of North American shale. Russian steel magnates were investing in American steel for this reason.
Obviously oil is cratering. The icing on the cake are unions. Probably more with X than AKS. Our companies seem like they will need government intervention to stay solvent...although this is just a guess on my part.
I'm a value investor, not a trader. However, I'll gamble a small % of my portfolio on trading. But even in this latter context, I'm not sure AKS is worth a foray. I can't shake the feeling of bankruptcy.
Any intelligent thoughts are welcome. Thanks in advance.
Your comments are mostly valid. But I'd be careful about the lawsuit. Nobody knows what the government will assess against TRN. As I've posted before, we're in an era where corruption seems to be at an inflection point, not least due to politicians exploiting class warfare polemics.
I'm still holding 927.35 shares averaged at around $16.85/share. It's definitely taking patience staying long. But I am betting on a recovery.
But like I said, the government might really wreck TRN. It's not an insignificant threat. I believe the lawsuits are without merit, frivolous, and highly political...but dirty interests can and do win sometimes...even in a nation like ours.
I hope for the best.
I am really interested in opening a position. AKS has been brutally battered. There's proverbial blood in the streets here.
Can AKS stay solvent? Is it a broken company and sector vs just a broken stock? If steel has a future in the US, this can be a huge long term winner.
On the other hand, I think MT offers a more concrete margin of safety. It will be capitalized by European money. It is globally diversified. And obviously scales.
Thanks in advance for your thoughts.
Solid comments. I agree in general. We're ultimately in a correction or perhaps a cyclical bear market. Any weaknesses will magnify themselves.
But as you noted, long term earnings will materialize into normalized prices. Namely a fair value PE of around 16. It's a matter of patience, a question of when, rather than if.
I still see CBI above $70 within 18 - 24 months.
China has much greater energy and transportation costs than the US. Never mind less technology capabilities. I have to think that US steel makers can use this to offset labor costs. Especially in optimizing labor costs...which means a reckoning with unions.
This strategy works in many other areas of US manufacturing. Why not steel?
As for Chinese steel subsidy, sure, fight fire with fire. Besides, their labor costs are increasing. Fast. It's happening in tech. This is going to be a war of attrition unfortunately.
I saw a similar situation with solar. Chinese companies eventually got decimated. At some point, their steel companies too fall under financial physics.
I'm watchful and waiting. But I'm not blaming Obama vs Bush vs whatever. Again, I leave the partisan demagoguery and voodoo economics to others.
Believe me, I want to invest in American steel. Russian magnates actually have poured billions into US steel. I'm still ultimately waiting on the supply and demand situation to change...having some hope our steel manufacturers will survive...even some faith that steel is intrinsic to national security.
We're a rich country. Somebody will pony up some money at some point to keep us alive here. I'm waiting.
I don't want to be too harsh. But most comments here reflect partisan demagoguery and voodoo economics. Rarely is objective and complete enough analysis.
It's not one administration versus another. US national life is much more nuanced. It's a combination of factors: global supply and demand, domestic labor costs, energy & transportation, and sheer culture.
American steel is in big trouble. Let's face it, we're expensive. Especially because of labor costs, in spite of historically cheap energy, manufacturing, and transportation costs. This alone is a huge statement about the intransigence of management and labor to work intelligently.
Also, China command's the lion's share of demand. It is what it is. And currently Chinese demand is low relative to excessive global supply. Hence, the survival of North American steel ultimately depends on fast scale up and scale down...with enough capitalization to withstand the slump.
North American capital exists for providing the latter. Whether it is provided is another matter. Given the inability of management and labor to work intelligently, one can understand investor reluctance...as more compelling options exist with the likes of MT.
The US government? What can they do? Actually in the past 8 years, they've been less incompetent. It's wishful thinking they'll intelligently catalyze massive infrastructure and jobs development, giving tax credits here...which is what our country really needs.
We Americans have a mean culture right now. Across the board. Government, corporations, the rich, and main street. The longer we promote greed and sloth, the longer this pain will be prolonged.
Lastly, I'm waiting for a true steel bottom. I have my eye on AKS and MT. But I am waiting for a true bottom, as China is on the verge of a correction. And yes, I hope AKS is around when the cycle becomes positive.
The more I think about it, the more I think you are right about a drop. Sentiment is sentiment. If rates rise, even nominally, I think the market will react against higher PE steady dividend stocks.
That might be your opportunity. I am holding the likes of JNJ, KO, and CNI. But I may indeed sell AWK, given the differences in size and potential movement.
Don't get me wrong. AWK is long term quality. But it does have a high enough PE and is not a larger cap...yet. I too would buy in heavy if it were to drop.
We don't. But it ultimately could be $0 for all we know. This is all now guessing.
So much uncertainty doesn't usually make for a compelling investment. Nevertheless, as I posted before, I'm holding my shares. Corrupt as the government and legal system seems in this situation, I'm still betting that they won't destroy what is otherwise a fine company.
I have to believe that the government has some intelligence here. Fleece TRN. But not so much that they won't be paying tax for years to come with earnings.
This should be due warning to any company to rigorously stay in administrative compliance. Governments, lawyers, and special interests are always looking for a payday. Simply consider the issue of patent trolling, another farce facilitated by the bright folks in government and our legal system.
Twisted stuff. But nobody will ultimately do anything. It was last year that GTAT went bankrupt on an elaborate pump and dump. I got out in time, but a lot of people tragically lost money in what turned out to be an elaborate pump and dump. The insiders got away with it...with class actions doing nothing...no cash cow left to milk.
The beat goes on.
I bought the basis at good value. Most of the dividends were reinvested at good value. It took a while, but you can see the impact now that MSFT is reverting closer to longer term .
I think MSFT is a solid buy now. It has solid earnings prospects. It has a moat in technology with Office, which it is fast leveraging for all kinds of cloud work.
I view CBI in a similar context. A moat. At value. A history of solid earnings. Continued decent earnings, withstanding occasional negative cash flow due to how contracts are structured.
Again, it takes patience, discipline, and the passage of time. All the best.