Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
Stock split expert Neil Macneale looks to the steel industry for both of his picks for 2007; Steel Dynamics (NASDAQ: STLD) is his top conservative investment while Chaparral Steel (NASDAQ: CHAP) gets the nod as his favorite speculation.
The editor of 2-for-1 explains, "As a group, stocks that have split have been found to outperform the market and, by investing only in splits, the portfolio is exploiting that anomaly. Our model portfolio is 'laddered' by buying and selling one stock each month, thus keeping the portfolio constantly at 30 stocks.
"Several steel companies and mining companies have announced splits in the recent months. Steel is historically a cyclical business, but the U.S. economy is strong at the moment, and should only get stronger as the housing sector recovers.
"In addition, U.S. steel companies now have pricing power they haven't enjoyed for decades, due to demand in Asia for their own locally produced steel. For these reasons steel, in general, should have a good run for the next year or two, and two companies, in particular, are well positioned to lead the pack.
"Steel Dynamics is the fifth largest steel company in the U.S., based on capacity, and operates some of the most efficient mini-mills in the business. We first recommended the stock in November and it has jumped up a bit since then but it is still a great value.
"Its P/E multiple is less than 10, far lower than the average for its industry and sector, and its earnings growth, at over 30% per year for five years, has been even hotter lately. These two numbers combined make STLD a bargain.
"Another U.S. steel company, Chaparral Steel, is a smaller company, but it has managed to become the second largest producer of structural steel beams in North America. Chaparral just began paying a dividend this October and it has announced a $100 million share buyback program. This was all in addition to its 2 for 1 stock split announcement in September."
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Reader Comments (Page 1 of 1)
1-04-2007 @ 9:43PM
Dave said...
If you were there to witness the way US Steel is currently running their operations you would have to belive that they are positioning to sell! Their "Safety" program is one of threat and influence. Meaning if you get a paper cut and report it, you will get fired. Their equipment has very little maintenece and what is done is rushed without the proper parts or tools and equipment. The entire mill is falling apart. They recently had people from Russia and Japan tour the plant and scheduled people to clean up and hung new signs on all of the buildings. While I believe that "The job is not done until you clean up", in my opinion, the new signs mean nothing if the mills are falling apart behind them! US Steel is either planning to sell or setting up for failure!!! All of this is ONLY MY OPINION! So with that I say, TREAD LIGHTLY