ArcelorMittal (MT) is a Luxembourg-based global leader in the production of steel. As the world’s number one steel company, MT has over 326,000 employees in more than 60 countries.
As the only truly global steel producer, ArcelorMittal is the number one supplier of steel to the automotive, construction, household appliance and packaging industries.
MT stock has been pummeled along with all companies providing products and services to the construction related sectors of the economy.
As the global recession worsened in November 2008, ArcelorMital slashed production by 35% and reduced its workforce throughout its system, including the layoff of 16% of its workforce in the United States.
With annual sales approaching $130 billion MT is projecting continued positive growth in sales for 2009, although earnings are being projected at a somewhat lower level than previous periods.
MT is currently trading at under $23 per share, an increase of 50% from its 52 week low reached in November, but well off its high of 104.77 for the period, reached in early June. Priced at this level the stock is trading at a P/E ratio of under 3. The company has operated at high net profit margins throughout its history, averaging over 12%.
ArcelorMittal plans on increasing its presence in the so-called BRIC countries (Brazil, Russia, India and China) over the next several years. These countries currently account for 75% of the growth in steel consumption worldwide.
Recent weakness in MT is partially attributable to the general decline in the ADR markets. The Bank of New York Mellon index of ADR’s declined January 13 by more than 3% while the Dow dropped 1.9%. ADR’s are dropped amid fears of a deepening recession in Europe.
Prices Up Yields Down
In the face of the decline in stock value, bonds issued by ArcelorMittal have seen a stunning increase in price and decline in yield. Bonds maturing in 2018 carrying a coupon of 6.125% are trading at a price of around 79, generating a return to maturity of just under 9.6%. The same bond was trading as recently as December 15, 2008, at a price of 62, yielding 13.3%.
ArcelorMittal bonds carry a rating of BBB+ from Standards and Poors, and a rating of Baa2 from Moody’s. With free cash flow of nearly $4 billion, a current ratio of 1.436 and a debt to equity ratio of 0.62, the company balance sheet is well positioned to traverse the troubled economic waters ahead.
It is also probable that the demand for steel will increase in the coming months, as governments throughout the globe enact stimulus packages aimed at investing in infrastructure, a segment of the economy which consumes large amounts of steel.
ArcelorMittal bonds are still attractively priced and should be part of a balanced bond portfolio.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
