Gerdau (GGB) is a Brazilian steel company that has been hurt by the economic downturn and weak demand for base metals. Manufacturing and construction has been soft, particularly in Brazil’s key trade market of China, and this has weighed on GGB.
However, despite a 15% decline in 2013 and a flop of about 60% from its 2010 highs the company could be bargain buy.
Gerdau stock trades for a forward P/E of about 9 and a price/sales of a bit more than 0.7. That means that a lot of the negativity has been priced in. GGB is still nicely profitable after efficiencies made during the downturn, and pays a 2% dividend that is very sustainable at less than half of its total earnings.
Steel prices will soar in an inflationary environment, boosting the bottom line for GGB even if production doesn’t budge. Given this upside and the nice income potential, Gerdau may be a good place to hide if you’re afraid of inflation.