ArcelorMittal a Good Global Steel Play

6/6 - "Lately, the world's leading steel companies have dealt with the sharp rise in costs for raw materials, which has squeezed margins despite the robust global demand for steel. Meanwhile, shares of Russia's Mechel (NYSE: MTL) have more than quintupled during the past year. The secret to Mechel's success is in the legacy of U.S. Steel (NYSE: X), whose pioneers recognized the importance of sourcing their own iron ore to ensure competitive steel pricing."

"Mechel takes this idea to the next level, with its massive diversified mining segment generating huge profits, in addition to producing everything needed for production, including coal, iron ore, nickel, and limestone...After completing the acquisition of Russia's largest coking coal producer, Yakutugol, Mechel's mining segment is able to supply most of the coking coal needed for its own production, while selling the surplus to a very eager global market. Furthermore, the company's own ports and rail lines help with the trip to market."

"On the strength of this integration, Mechel managed to increase both net operating margin and its EBITDA margin in fiscal 2007 while increasing revenue 52% to $6.68 billion over fiscal 2006."

6/9 - "AK Steel Holding Corporation (NYSE: AKS) produces carbon, stainless and electrical steel products...The stock is up 30% so far in Q2, on word of a solid Q1 earnings report (4/22) and several successful price increases/surcharge levies. The firm said that soaring global steel prices and favorable labor contracts have enabled it to boost profits beyond expectations. Analysts have pointed to expansion in developing economies and historically low levels of inventory as the factors fueling demand.'

"The news has kept AKS shares cycling through a positive ten-week trading channel. The price is rebounding from the base of that channel, suggesting the potential for a rise back toward the top."

"Over the past 52 weeks, the stock has traded between $27.90 and $73.07. A stop-loss of $61.50 looks good here."

6/5 - "US Steel (NYSE: X) shares are trading higher after competitor Nucor (NYSE: NUE) raised its earnings outlook for its upcoming second-quarter earnings. The previous forecast of 1.55 to 1.60 was lifted by 20 cents to 1.75 to 1.80. Analysts were looking for 1.69 and an upside surprise by NUE should signal good things for X as well."

"For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $140 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just seven weeks as long as X is above $140 at July expiration. US Steel would have to fall by more than 23% before we would start to lose money."

"This trade could be risky if the stock has risen too quickly and has a correction, but even if that happens, this position could be protected by the support the stock might find at $150, where it formed a bottom in May."