Best Stocks for 2008: Mining for value at Russia's Mechel (MTL)

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"Mechel OAO (NYSE: MTL), Russia's second-largest producer of long steel products," is our favorite speculative play for 2008," say co-editors Roger Conrad and Yiannis Mostrous in Vital Resource Investor.

"The company operates one major steel mill with a capacity of close to 5 million tons of output per year. Mechel operates in Russia, Lithuania and other countries in Central and Eastern Europe. Its ace in the hole is a mining business that focuses on raw materials used in making steel, primarily coking coal, iron ore, nickel and steam coal.

"The company's steel business is 100% self-sufficient in coking coal, 80% in iron ore and 50% in electricity. This aspect of Mechel (i.e., vertical integration) is critical in an environment where raw material prices continue to rise. And it should support the stock because its performance this year has been nothing less than dazzling.

"Mechel is a high-cost producer, and management has worked to cut costs while improving efficiency. Those efforts have been quietly successful up to now, and we expect this to be an ongoing positive theme.

"And Russia's strong domestic demand -- within and outside the all-important energy sector -- is an additional advantage for the company. Buy Mechel at current prices."