AK Steel looks forward to better days for the U.S. auto sector

The market's choppy, consolidating (or perhaps worse) pattern continues. Further, the steel sector remains vulnerable to a U.S./global economic slowdown, but one company that may hold its own is AK Steel.

AK Steel Holding Corp. (NYSE: AKS) is the third largest U.S steelmaker, and features coated, cold rolled and hot rolled carbon steel used by the automotive, appliance and manufacturing markets, among other buyers.

Analysts expect AK Steel Holdings' 2008 revenue growth to slow to about 2%-5% in 2008 after a 16% rise in 2007. Analysts expect stainless steel raw material surcharges to end, but carbon steel should show some price improvement as companies rebuild inventories.

Longer-term, analysts likely AKS' sector position, overall product mix, debt reduction, and cost containment (particularly regarding legacy costs). The Reuters F2008/F2009 EPS consensus estimates for AKS are $4.01/$4.33.

The risks? AKS remains vulnerable to companies' willingness to rebuild steel inventories, particularly the auto sector, which accounts for more than 40% of revenue.

The First Call mean rating for AKS is: Hold. [9 firms.] Mean 2008 target: $49.00. [high: $57, low: $45.]

Stock Analysis: AK Steel is a moderate-risk stock not suitable for low-risk investors. More-cautious investors may want to wait for a possible pull-back in AKS' shares to about $51, but keep in mind AKS's shares may not retreat to that level. Investors with an investment horizon longer than 2 years should be rewarded from AKS' shares. Sell / Stop Loss if you were to purchase shares in this company: $31.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.