The sell-off in the metals space has intensified over the last couple of weeks. United States Steel (X) has regularly been hitting fresh 52-week lows. ArcelorMittal (MT), the world’s largest steel company, isn’t far behind. Based on current market capitalization, ArcelorMittal is valued at roughly 60% of Nucor (NUE). Nucor’s annual steel capacity is only about a quarter of ArcelorMittal’s.
You can also consider the SPDR S&P Metals and Mining ETF (XME) to get a diversified exposure to US-based mining companies. More than half of XME’s holdings are invested in steel companies.
Highly levered stocks are getting battered
While United States Steel and ArcelorMittal have been hitting new lows, AK Steel (AKS) is still marginally above its 2015 lows. But it’s still among the worst performing steel companies in 2015, as you can see in the above graph. Apparently, the more levered steel companies have borne the brunt this year.
Looking at leverage, AK Steel looks the worst placed, at least on some of the metrics. The company’s debt-to-capital ratio is ~120%. That basically means that the book value of equity is negative. The company’s outstanding debt is more than six times its current market capitalization. AK Steel fares badly on these two leverage metrics. However, there are certain other metrics that investors should be looking at, as we’ll see later in this series.
In this series, we’ll explore how AK Steel could play out in the current slowdown. We’ll analyze what factors could drive the company’s performance next year. We’ll also look at what AK Steel’s management has to say on the company’s outlook.