AK Steel (NYSE: AKS) shares are trading higher today after Standard & Poor's announced they have added the stock to the S&P 500 index. These announcements drive stock prices higher since any mutual fund that is tracking the S&P 500 will need to add AKS to its holdings soon. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AKS.
After hitting a one-year low of $27.90 in August, the stock hit a one-year high of $73.07 in May. AKS opened this morning at $65.74. So far today the stock has hit a low of $65.42 and a high of $68.10. As of 12:30, AKS is trading at $67.18, up $4.00 (6.3%). The chart for AKS looks neutral and deteriorating, while S&P gives the stock a bearish 2 Stars (out of 5) Sell rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $55 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 7.5% return in just three weeks as long as AKS is above $55 at July expiration. AKS would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
AKS has not been below $55 since April and has shown support around $63 recently. This trade could be risky if the global economy tanks in the next few weeks, but even if that happens, this position could be protected by the support the stock might find around $63, where it has bounced twice in the past month. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AKS.
AK Steel Holding Corporation (NYSE: AKS) produces carbon, stainless and electrical steel products. The firm makes cold-rolled and aluminum-coated stainless steel for automakers, provides energy efficient electrical steels to makers of power transmission and distribution equipment, and sells hot- and cold-rolled carbon steel to construction companies, automakers and industrial machinery producers. It also manufactures carbon and stainless steel tubular products and makes antimicrobial coated steels for appliances. The firm has major plants and offices in Ohio, Indiana, Kentucky and Pennsylvania. Clients include Ford Motor (NYSE: F), General Electric (NYSE: GE) and Toyota Motor (NYSE: TM).
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.
First, the obvious -- there are too many Coach bags and bags of its ilk, and there isn't enough steel. Second, Coach couldn't pass on a price increase to save its life. Every price increase sticks for US Steel.
Third, on the Coach call where does Lew Frankfort -- who is great! -- want to expand? The U.S. Ouch! Worst market in the world. Saturated. No growth. Feeling poor.
Where does US Steel want to expand? Doesn't matter. The demand is so great it's really an issue of shipping, as CSX's (NYSE: CSX) (Cramer's Take) Michael Ward would tell you -- at least he told me last night on "Mad Money."
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.
TheStreet.com's Jim Cramer says U.S. Steel is a puzzle, and he ponders how to play it here.
U.S. Steel (NYSE: X) (Cramer's Take) presents the ultimate conundrum. It is hitting on all cylinders, courtesy of the incredible demand for steel domestically because of pipelines. And it is finally not suffering from dumped imports, because the dumpers are from countries growing so much faster than we are that they need all the steel they can get - China, for example, is struggling to build its own share instead of dumping.
John Surma, the CEO, has taken this once-great company right back to greatness with a rise from $9 to $127 in five years. That defies gravity. He has done that by cutting labor costs and growing the business, he has done it by emphasizing areas he can dominate and cutting ones he can t. And he has done it by taking advantage of the 30 bankruptcies in this sector, leaving him one of the few publicly traded companies left, including Nucor (NYSE: NUE) (Cramer's Take), which is a great company, AK Steel (NYSE: AKS) (Cramer's Take), which levitates all of the time on takeover talk and then DOESN'T come in, and Reliance (NYSE: RS) (Cramer's Take), which is another fave of mine.
In sharp contrast to the ten horrifically downtrending stocks I warned against buying in this article, today I feature these 10 solidly uptrending stocks.
It's charts like theirs that make you wonder why you're messing around with any other stocks. Ahhh, if it was only that easy. No matter that all the stocks listed above are making new highs, now the concern is that they may have come too far too fast. In 2008, several of these stocks-the gold plays in particular-have risen nearly 50%. Obviously the oil stocks have also been surging, but how much further can the "black gold" plays really run?
AK Steel Holding Corp. (NYSE: AKS) swung to a fourth-quarter profit that far exceeded Wall Street's expectations. The company earned $106.7 million, or 95 cents a share, in the three months ending December 31, compared with a loss of $49.3 million, or 45 cents a share, a year ago, when it took a one-time employee retiree health care benefit charge of $133.2 million. Revenue rose 7 percent to $1.69 billion from $1.58 billion in the fourth quarter of 2006, during a nearly 13-month lockout at its Middletown Works mill. Analysts surveyed by Thomson Financial had expected a profit of 59 cents per share on revenue of $1.68 billion. Shares fell in early trading Tuesday (along with the DJIA), but had recovered to $37.67 by mid-day Tuesday.
Railroad operator CSX Corp. (NYSE: CSX) reported that its profit rose more than 5 percent in the fourth quarter as productivity increases and expanding business offset higher fuel costs. Net earnings were $365 million, or 86 cents per share, for the three months ending December 28, compared to a profit of $347 million, or 75 cents per share in the previous year. Analysts polled by Thomson Financial had expected earnings of 64 cents per share for the quarter, and $2.50 for the year. CSX earned $1.23 billion, or $2.99 a share, for the year, against $1.31 billion, or $2.82 a share, a year ago. Revenue rose to $2.58 billion from $2.4 billion a year ago. Annual revenue rose to $10.03 billion from $9.57 billion in 2006. Shares were up around 6 percent to $43.75 by mid-day Tuesday.
AK Steel Holding Corp. (NYSE: AKS), a flat-rolled carbon, stainless and electrical steel producer, is recently up $1.39 to $50.63. The DealReporter said several steel companies are interested in AKS according to sources. AKS is expected to report EPS on October 23. AKS call option volume of 15,243 contracts compares to put volume of 2,502 contracts. AKS October 50 straddle is priced at $3.75. AKS November option implied volatility of 60 is above its 26-week average of 51 according to Track Data, suggesting larger price risks.
Mechel Steel (NYSE: MTL), a Russian mining and metals company, is recently up $6.26 to $72.23 after reporting its operational results for nine months. MTL November option implied volatility of 55 is above its 26-week average of 43 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Boston Scientific (BSX), Medtronic (MDT), St. Jude Medical (STJ), Bankrate (RATE) and AXA (AXA) were today's noteworthy initiations:
Thomas Wiesel initiated coverage of the Medical Devices Industry:
Boston Scientific (NYSE: BSX) was initiated with an Underweight rating, expecting shares to Underperform peers due to reductions in estimates, risks to the stent business and valuation.
Medtronic (NYSE: MDT) was initiated with an Overweight rating, saying attractively valued as they believe the growth in underlying markets may be more robust than the current sentiment suggests.
St. Jude Medical (NYSE: SJT) was initiated with an Overweight rating, saying shares offer exposure to attractive drivers, a management team with the best track record in the segment, and a potential acquisition candidate.
Stephens believes the recent weakness in Bankrate (NASDAQ: RATE) due to "turmoil" in the market has created an attractive entry point, starting shares with an Overweight rating.
Morgan Stanley assumed coverage of AXA (NYSE: AXA) with an Overweight rating, citing an attractive risk/reward and strong free cash flow...
OTHER INITIATIONS:
S1 Corp (NASDAQ: SONE) was initiated with a Market Perform rating at Avondale.
Honeywell International Inc.(NYSE: HON) -- implied volatility Elevated as traders purchase premium into EPS. HON is recently up 35 cents to $58.17. HON will report EPS before the open on 7/19. HON has four business groups: Aerospace, Automation & Control Solutions, Specialty Materials and Transportation Systems. HON July option implied volatility of 23 is above its 26-week average of 21 according to Track Data, suggesting larger risk.
Sprint Nextel Corp. (NYSE: S) -- July calls active on renewed take-over chatter. S, an operator of a wireless network serving 53.6 million customers, is recently up $0.63 to $22.03 on renewed and unconfirmed takeover chatter. S call option volume of 12,196 contracts compares to put volume of 198 contracts. S overall option implied volatility of 30 is near its 26-week average of 29 according to Track Data, suggesting non-directional risks.
The next time you are stuck in traffic on the Santa Monica Freeway, you might amuse yourself by recalling that much of the steel in that mass of vehicles was made by an outfit headquartered in Middletown, Ohio.
AK Steel Holding Corporation (NYSE: AKS) produces carbon, stainless and electrical steel products. The firm makes cold-rolled and aluminum-coated stainless steel for automakers, provides energy efficient electrical steels to makers of power transmission and distribution equipment, and sells hot- and cold-rolled carbon steel to construction companies, automakers and industrial machinery producers. It also manufactures carbon and stainless steel tubular products and makes antimicrobial coated steels for appliances. The firm has major plants and offices in Ohio, Indiana, Kentucky and Pennsylvania. Clients include Ford Motor (NYSE: F), General Electric (NYSE: GE), General Motors (NYSE: GM) and Toyota Motor (NYSE: TM). Competitors include U.S. Steel (NYSE: X) and Nucor (NYSE: NUE).
The stock is up more than 30% over the past month, on news of a solid first quarter earnings report and takeover talk. The latest rumor involved last week's speculation that Arcelor-Mittal (NYSE: MT) might be sizing the company up as a potential acquisition. The possibility was actively debated in the press and that prompted a remark by the AK Steel CEO that management is "not actively seeking to sell the company." Still, the steel industry is in a consolidation phase and Arcelor-Mittal is said to be interested in bolstering its U.S. presence. The stock popped on the takeover rumor and has since been defining a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the shares with one "buy," five "holds" and two "sells." The AKS Price to Sales ratio (0.60), Sales Growth rate (19.78%), EPS Growth rate (983.33%) and Revenue per Employee ($907.57k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $11.11 and $37.70. A stop-loss of $29.30 looks good here.
The market spent most of the day in the red finally pulling into a mixed close. It was a reminder to some traders that the market can still go both ways. With the recent run-up we have seen and new highs and records being broken going back to 1927, one should remember caution as the market can go both directions and may be due for a correction soon.
The NYSE had volume of 2.7 billion shares with 1,309 shares advancing while 1,927 declined for a loss of 37.06 points to close at 9788.03. On the NASDAQ, 1.9 billion shares traded, 1,255 advanced and 1,779 declined for a small loss of 0.80 to 2571.75.
In options there were 4.6 million puts and 5.7 million calls traded for a put/call open interest ratio of 0.82. Among the most active options today were Pfizer (NYSE: PFE) which saw heavy volume on the May 25 calls (PFEEE) with over 217,000 options trading. The June 22.50 calls (PFEFX) also traded over 37,000 calls and this unusually high option volume is likely due to the dividend PFE pays tomorrow. Cisco Systems (NASDAQ: CSCO) options were active on the May 30 calls (CYQEF) and the May 27.50 calls (CYQEY) both moving over 65,000 options trading. The June 30 (CYQFF) strike was almost as active crossing on the June 30.0 with over 62,000 calls. There will be some disappointed option traders as CSCO is trading 5% lower in the aftermarket after reporting earnings. Kevin Kersten is an Options Analyst with InvestorsObserver.com. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You To Dump A Stock.
Disclosure note: Mr. Kersten owns and or controls a diversified portfolios of long and short positions that may include holdings in companies he writes about.
AK Steel (NYSE: AKS) shares are trading higher today after Standard & Poor's announced they have added the stock to the S&P 500 index. These announcements drive stock prices higher since any mutual fund that is tracking the S&P 500 will need to add AKS to its holdings soon. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AKS.
In sharp contrast to the ten horrifically downtrending stocks I warned against buying in 
AK Steel Holding Corp.
Honeywell International Inc.
talk. The latest rumor involved last week's speculation that 
The market spent most of the day in the red finally pulling into a mixed close. It was a reminder to some traders that the market can still go both ways. With the recent run-up we have seen and new highs and records being broken going back to 1927, one should remember caution as the market can go both directions and may be due for a correction soon.
Countrywide Financial Corp.
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