ArcelorMittal (NYSE: MT - option chain) shares have dropped sharply after the company announced it will cut steel production globally by 30% during the fourth quarter due to declining prices and sluggish growth. MT had previously announced a 15% production cut earlier this year. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MT or another steel manufacturer.

This morning, MT opened at $26.01. So far today the stock has hit a low of $25.73 and a high of $27.52. As of 12:25, MT is trading at $26.16, down $5.54 (17.5%). The chart for MT looks bearish.

For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $40 range.

By Alex Kolb, Zack's Investment Research

Nucor Corporation (NYSE: NUE) recently reported record second-quarter earnings of $1.94 per share, beating the consensus estimate by nearly 8% and topping the year-prior $1.14. Consolidated net sales of $7.09 billion also reached a record level, exceeding last year's $4.17 billion. For income, the company is yielding 2.3%, which well ahead of the industry average.

Company Description

Nucor and its affiliates, which make the most steel in America, manufacture steel products. The company's operating facilities are primarily in the U.S. and Canada. Nucor also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap. The company is also North America's largest recycler.

Wachovia (NYSE: WB) was able to get a real star to be its new CEO. Robert Steel was once a vice chairman at Goldman Sachs (NYSE: GS) and is currently Treasury Undersecretary. He joins the big bank just in time to see its fortune get worse, perhaps much worse.

At the time Mr. Steel comes through the door at the firm, it also said it would lose as much as $2.8 million in the second quarter, which is much greater than Wall Street expectations.

According to The Wall Street Journal, "The naming of a new CEO may quiet market speculation that Wachovia is an acquisition target."

The question is why anyone would want the Wachovia job. The company's shares are down more than 70% in the last year. The drop is even greater than Citigroup's (NYSE:C).

Mr. Steel is likely to cause an uprising among his shareholders within his first few weeks on the job. Wachovia will probably need to raise more money to shore up its capital base. Its market cap is down to $28 billion. If the firm has to raise $5 billion, the stock could fall from its current price of $14.29 to below $11. A worsening housing market and economy will probably cause even more write-offs as the year goes on.

Steel should have stayed in Washington. The chances that things will get better at Wachovia soon are slim and none.

Douglas A. McIntyre is an editor at 247wallst.com.

Since 1975, Lakshmi Mittal has turned ArcelorMittal (NYSE: MT) into a global steel powerhouse. As a result, he's worth in excess of $45 billion. Actually, as an indication of his power, Mittal is now a board member of Goldman Sachs Group, Inc. (NYSE: GS).

And, no doubt, his dealmaking is likely to continue. In fact, there are reports that ArcelorMittal will make a play for Rio Tinto Group, which is the #2 ore producer in the world. The company is currently ensnared in a hostile takeover from BHP Billiton Ltd. (NYSE: BHP). Basically, ArcelorMittal may make an equity investment, which could exceed $10 billion.

Why? ArcelorMittal needs to find ways to stabilize its raw material supplies. After all, with pricing pressures, it's important to contain things.

Then again, this may ultimately be mostly noise -- to get traders excited. But, in light of ArcelorMittal's global power, investors will definitely listen.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Platinum Equity focuses primarily on buying non-core assets from major companies. It's complex stuff but the firm has built a strong system to facilitate deals, such as with transition plans, long-term strategies, HR and so on.

And it's paying off. This week Platinum Equity sold PNA Group Holding to Reliance Steel & Aluminum Co. (NYSE: RS) for about $1.1 billion.

Keep in mind that Platinum picked up PNA in 2006 for a cheap $17.5 million. What's more, the firm was able to recap the company and take out a special dividend for $181 million last year.

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Nucor Steel is worth a review.

Nucor Corporation (NYSE: NUE) produces about 20 million tons of steel annually, and also is a major recycler of scrap metal.

In general, analysts expect NUE's revenue to increase 10-12% in FY 2008, aided by the Harris Steel acquisition and other acquisitions. Analysts also see strong demand for beams and bars, on continued non-residential construction growth.

Nucor Corp. (NYSE: NUE) shares opened higher but are now flat on the day despite an article in the Wall Street Journal over the weekend said the steel industry should continue its strong growth. The article cites growing global consumption, as well as shrinking exports from Russia and China. If you agree with the WSJ and 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 NUE.

After hitting a one-year low of $41.62 in August, the stock hit a one-year high of $76.48 last week. NUE opened this morning at $73.66. So far today the stock has hit a low of $73.24 and a high of $75.60. As of 12:20, NUE is trading at $73.92, unchanged from Friday's close. The chart for NUE looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold 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 5.3% return in just three months as long as NUE is above $55 at July expiration. Nucor would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.

NUE hasn't been below $55 at all since January and has shown support around $67 recently. This trade could be risky if the global economy shrinks and reduces the worldwide demand for steel, but even if that happens, this position could be protected by the support the stock might find from its 200 day moving average, which is currently around $60 and rising.

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 NUE.

Readers of this space know that my investment bias is toward large-cap companies with demonstrated business models and a competitive advantage in established markets, preferably with a favorable global trend as a support. With the above in mind, U.S. Steel is worth a review.

U.S. Steel Group (NYSE: X) is the fifth largest steel producer in the world.

Analysts expect U.S. Steel's 2008 revenue to increase 13-17%, primarily stemming from acquisitions. Further, distributor inventory levels reached unsustainably low levels in 2007, in the interpretation of many analysts, and the replenishing in 2008 should benefit X.

Meanwhile, oil producer country tube/tube-related products should remain strong, and additional steel sector consolidation should help the sector regain modest pricing power. The Reuters F2008/F2009 EPS consensus estimates for X are $10.87/$11.52.

The risks? Analysts remain concerned about rising raw material costs. A sustained global economic slowdown would hurt U.S. Steel's results.

The First Call mean rating for X is: Buy [15 firms]. Mean 2008 target: $119 [high: $134, low: $90].

Stock Analysis: U.S. Steel is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from X's shares. Note: A safer position would involve waiting for X's shares to pull back to the $110-115 range, but they may not retreat to that level. I'd consider a Sell / Stop Loss at $83.

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.

Arcelor Mittal (NYSE: MT) shares are trading higher this morning on news that the company is raising prices of flat-carbon-steel products in Europe by 40 euros a ton, citing higher raw-material costs. If you think that the company 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 MT.

After hitting a one-year low of $48.07 last February, the stock hit a one-year high of $83.88 in October. MT opened this morning at $75.95. So far today the stock has hit a low of $75.72 and a high of $76.63. As of 11:05, MT is trading at $76.21, up $1.34 (1.8%). The chart for MT looks neutral and improving.

For a bullish hedged play on this stock, I would consider a June 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 9.9% return in just four months as long as MT is above $55 at June expiration. Arcelor Mittal would have to fall by more than 27% before we would start to lose money.

MT hasn't been below $55 since August and has shown support around $71 recently. This position could be risky if the worldwide demand for steel slows, but even if this happens, our trade might be protected by the strong support the stock might find around $60, where it bounced last 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 MT.

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Cleveland-Cliffs is worth an evaluation.

Cleveland-Cliffs Inc. (NYSE: CLF) is the largest producer of iron ore pellets in North America, and is also a major supplier of metallurgical coal to the global steelmaking industry.

Analysts like CLF's solid fundamentals, pricing power, and high customer retention rate.

While big metals company Rio Tinto (NYSE: RTP) is trying to prevent being taken over by larger rival BHP Billiton (NYSE: BHP), it appears that another bid may be coming from China. According to The International Herald Tribune, "China's biggest steelmaker, Baosteel Group, is considering joining with others in the industry in a bid for mining giant Rio Tinto."

Rio Tinto has been scrambling to show the markets that it is better off alone. It has discussed selling $15 billion in assets. The company has also said that the economies of scale in a BHP deal are much less than the bidding company has indicated.

All of that may be well and good, but the market has actually moved RTP shares down since it rejected the BHP Billiton offer, a sign that traders do not think long-term value is going to be enhanced by the company staying independent.

While the BHP offer is for a stock transaction, it is possible that the bid from Baosteel could have a cash component, money from the Chinese government. And that might change the view of a lot of RTP shareholders.

Douglas A. McIntyre is an editor at 247wallst.com.

Happy Thanksgiving from the BloggingStocks staff and contributors! Here are some leading financial stories around the world today:

Stocks plunge in China
China's Shanghai Composite Index sank 4.41 percent Thursday to fall below 5,000 -- 18.2 percent off its peak of 6,092 in mid-October -- adding evidence of an end to the China bubble. Shares of PetroChina (NYSE: PTR), the world's largest oil company, fell 4.6 percent to 35.11 yuan.

ArcelorMittal takes charge in China
ArcelorMittal (NYSE: MT), the world's leading steelmaker, is taking a controlling 73 percent stake in China Oriental Group Co. Earlier this month, ArcelorMittal bought a 28% stake in the iron and steel maker for $647 million. The Luxembourg-based company also disclosed plans for steel plants in India's Jharkhand and Orissa states.

Air France-KLM's Q2 profits soar
Air France-KLM (NYSE: AKH) on Thursday posted second-quarter profit of $1.1 billion, nearly double the $539.7 million reported in the same period last year. The top European airline also said it had not dismissed the possibility of offers for Italy's Alitalia or Spain's Iberia airlines.

Don't think of Reliance Steel & Aluminum (NYSE: RS) as a steel company; think of it as a 'diversified' metals company, and one that's on sale, at that.

Reliance supplies metal process services and also manufactures metal products for the construction, transportation, aerospace, manufacturing and semiconductor industries.

Reliance is a compelling play now primarily for three reasons: 1) its demonstrated proficiency servicing the aforementioned sectors, 2) the continued strength of the international economy, and 3) the high-end nature of the company's metal products. That last point provides an element of safety for investors: don't think of RS as a classic "basic steel for building foundations" company. Reliance has a multitude of products that are outside the classic (and very cyclical) office building segment. A telling fact: Reliance serves more than 125,000 customers.

Further, the argument among some analysts that above-average prices for steel and aluminum are not sustainable is not supported by current global economic conditions. True, due to the slumping auto industry, U.S. demand may drop, but demand from China and from Asia, in general, remains strong, and Latin America is expected to hold up its end of the bargain in 2008. The Reuters F2007/F2008 EPS consensus estimates for RS are $5.32/$6.02.

The First Call mean rating for RS is: Buy. [8 firms.] Mean 2007 target: $67.50. [high: $77, low: $59.]

Further, investors can receive an added savings as a result of Thursday's market sell-off: RS's shares closed Thursday down $1.60 to $56.75. RS's low p/e of 10 also reduces the stock's risk/return ratio, and it's a modest price to play for such a well-run company with in-demand products.

Stock Analysis: Reliance is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from RS's shares. Sell / Stop Loss: $39.

Given that the markets continue to exhibit a choppy/consolidation pattern (or perhaps worse), it's best to consider including a few defensive stocks in your portfolio. Low-profile Harsco Corporation (NYSE: HSC) is worth a review.

Harsco is a diversified industrial services and engineering products company that caters to the steel/metals industry. The company offers metal reclamation, slag processing, scrap management and related services for steel/metal manufacturers. HSC's access services business rents/sells concrete-forming equipment, scaffolding, and bridge-decking products, primarily for industrial maintenance and commercial construction clients.

Typically, companies like Harsco would be more-sensitive to the business cycle, but that risk is lessened by HSC's revenue stream diversity, wide 5-continent geographic footprint, and a contemporary trend: recycling. Fortunately for Harso, recycling and reclaiming processes are likely to increase in popularity, for both cost and environmental reasons, in the years ahead. Harsco is well-positioned in this regard, and analysts generally project 13%-20% annual revenue growth for HSC for the immediate years ahead. The Reuters F2007/F2008 EPS consensus estimates for HSC are $2.97/$3.35.

Shares of US Steel (NYSE: X) are down 6% today. No one on Wall Street seemed to think much of the company's earnings.

Is it any wonder? The company reported third-quarter 2007 net income of $269 million, or $2.27 per diluted share, compared to second-quarter 2007 net income of $302 million, or $2.54 per diluted share, and third-quarter 2006 net income of $417 million, or $3.42 per diluted share. Total revenue rose slightly from $4.1 billion in the third quarter last year to $4.35 billion this year.

US Steel also said it expected poor results in the current quarter. Part of the issue driving down net income was the cost of an acquisition. The latest results included a charge of 23 cents a share for inventory acquired as part of the company's purchase in June of Lone Star Technologies Inc.

US Steel blamed imports from China for keeping its prices to customers low. Higher commodities prices also hurt the firm.

The problem for US Steel now is that China pressures and higher commodities prices are not likely to abate. That puts the company in a bind. Its shares trade in the middle of its 52-week range, changing hands today at a bit above $105. But if price and margin pressures stay as they are as 2008 begins, the stock could move back toward its recent lows around $80 reached just last August.

Douglas A. McIntyre is an editor at 247wallst.com.

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