Gerdau AmeriSteel (GNA – NYSE)
Dear Bottarelli Research Member,
Another week has gone by, and we still remain right on the money with our mid-April market bottom forecast. But having said that, two things still bother me with this market: High energy costs and the rapid appreciation of food prices.
Luckily, we’re properly positioned with our small-cap portfolio to take full advantage of both of these events. But I’m afraid that most Americans are not prepared to deal with higher food and energy prices. That’s why I’ll continue to monitor the movements of the major market averages very closely. You see, it typically takes around 3-6 months for higher costs to filter down into the weekly governmental economic statistics, so there’s a good chance that we have yet to see the effects of these two events properly reflected in our economic data reports. Therefore, I will be carefully watching the behavior of the markets after earnings season is over to get a sense of the market’s internal strength.
To capitalize on any market weakness, we’ve been successfully taking advantage of every sector poised to move dramatically higher over the last several months (like solar, coal, oil, gas, and shipping). Not only that, but the dividends that our portfolio kicks out help to isolate us from the market turbulence we’ve seen since January.
And at the same time, we’ve also been successfully using puts on the Dow Diamond (DIA – AMEX) to hedge our entire small-cap portfolio. This strategy has returned 46.94%, 36.17%, 7.64%, 225.61%, and 40.00% since November of 2007, and with strong returns like this protecting our small-cap ledger, you can expect us to continue this trading philosophy whenever appropriate.
In terms of this week’s pick, we are going to dive into another strong sector that has much more room to run — and the pick stems from the huge growth in the steel industry.
Emerging countries continue to modernize and develop their infrastructure like no other time in history — something we’ve called “The Industrial Revolution of the Far East” — and this week’s pick should benefit tremendously. Not only that, but today’s pick is also a double play on an improving U.S. economy. You see, if we begin to emerge from our “soft” recession, this will only enhance the bottom line of today’s pick.
Truth be told: The company I’m bringing you today is no new-comer. They’re actually the fourth largest steel company (and the second largest mini-mill steel producer) in North America, with annual manufacturing capacity of 12 million tons of mill-finished steel products. They own 19 mini-mills, 19 scrap recycling facilities, and 61 downstream operations. This alone makes a very good investment thesis. But despite their size and stature, not may people on Wall Street have ever heard of them — and that’s why this stock only trades for $16.00 per share. This is definitely the kind of stock that we want to own in our small-capportfolio.
Not only that, but their last earnings report was extremely impressive. For the three months ended March 31st, they reported a 22.1% increase over the three months ended March 31st 2007 and a 53% increase in sales over the same period. With their recent numbers coming in so strong, I can’t think of a more beautiful way to introduce this week’s gem.
What also caught my attention is the fact that they have been quietly acquiring competitors like Chaparral Steel and Century Steel. This growth through acquisition has given them tremendous exposure to just about every steel segment you can think of, such as construction, automotive, mining, cellular and electrical transmission, bridges, highways, stadiums, and commercial buildings.
As you can see, they have every segment of the steel sector covered, and if the Fed continues holding true to what they have said, we should see some very nice gains coming our way. The company is called Gerdau Ameristeel (GNA – NYSE) and let’s buy shares at or under $18.00.
UPDATES
Canadian Solar (CSIQ – NASDAQ): We’ve officially hit our biggest winner of the 2008 investing year! Shares of CSIQ traded as high as $46.41 this week, good for a whopping 192.81% gain! On several of our weekly talks, I have mentioned to Bryan that with oil prices at levels never witnessed in history, the solar sector is going to continue “screaming higher” throughout this year. Therefore, we might see $60.00 (or above) on CSIQ in the blink of an eye. But in light of this week’s huge gains, here’s what I’d like you to do. Sell a quarter of your position at these high levels, and then continue holding the remainder of your position for more upside. That way, you lock in your stellar gains and still maintain upside exposure. Sell ¼, and hold the remainder for more upside.
Gran Tierra Energy (GTE – AMEX): More good news!GTE has now given us a 67.68% return, as shares traded as high as $6.07 this week. With such great profits in hand, let’s go ahead and take half of our position off the table. While I absolutely love the quick returns GTE has handed us, I want to ensure that we give this little gem the opportunity to fully increase the way I think it can. I truly believe that this gem can hand us gains similar to CSIQ — if not even more. I have followed this company since inception, and if you read our original alert from March 17th, then you know GTE is quickly become a producer in an area of the world that has been grossly under-explored. GTE is on the move in a big way, and I expect to see some big profits coming our way. Sell half, and hold the remaining half.
Synchronoss Technologies (SNCR – NASDAQ): Last week, shares got crushed on their earnings. To say this caught me by total surprise would be an understatement. As I looked over their business operations with a fine-tooth comb, they’re now saying that their “real income growth” will come later this year (and into the early part of 2009). When I look at the stock’s reaction to their earnings, I truly feel that the haircut has been dramatically overdone. That’s why I’ll continue to monitor this position moving forward. A bounce is certainly in order, and that’s why I didn’t jump the gun and sell at the lows. Therefore, let’s hold shares for another week or two and see if a bounce occurs. If not, we’ll close it off and move on. Hold.
China Finance Online (JRJC – NASDAQ): We have yet another new high water mark in our small-cap ledger, as shares of JRJC are blasting higher today after increasing their revenue and earnings guidance for 2008. With today’s strong upside move, we’re now showing a 26.33% gain from our December 2007 entry price, so continue holding JRJC for more gains. Hold.
International Coal Group (ICO – NYSE): We should all be excited just how quickly our newest coal play has moved in our favor, so please make sure you own ICO. I still consider it a buy at these levels. As Wall Street wakes up to this grossly under-valued situation, we firmly believe ICO will hand you a double by the end of the year. Buy.
Mercadolibre (MELI – NASDAQ): This week, MELI reported another very strong round of earnings. Net income (before income and asset tax expenses) reached $4.9 million, an increase of 162.9% over their prior year quarter. As I study this position, I continue to feel that MELI is just in the beginning stages of penetrating the Latin American and South American markets. Therefore, maintain your position in MELI for more gains. Hold.
Anglo Potash (AGPOF.PK): Wouldn’t you know it! Right after we put out our buy alert on Friday, BHP offered $8.25 per share to buy out AGPOF. Now of course, AGPOF could revoke this offer, but cutting off your purse strings would not be a smart thing to do. To my eye, a buyout offer like this goes to show you the tremendous power in these small-cap potash plays, and you better believe that Potash One is foaming at the mouth over this news! After all, they are one of the only companies with permits in hand and ready for drilling, so I hope you own exposure to each company. Buy.
Fushi Copperweld (FSIN – NASDAQ): They reported another round of stellar earnings, as revenues for the first quarter increased 155% from 2007. That’s an extremely strong number, which explains why the stock has been increasing at such a rapid rate. All things point to this gem continuing to hand us stellar returns. If you bought on the dips at $15.00 as we suggested then you’re well on your way to some sweet profits. I fully expect to see FSIN move above her old highs, so continue to hold for more gains. Hold.
China Precision Steel (CPSL – NASDAQ): What a move! Just today, CPSL reported another round of great earnings, as revenues for the third quarter of fiscal 2008 came in at $18.7 million. This represented a 61.3% increase from $11.6 million in Q3 last year. Better yet, operating income increased 136.9%! Folks, these are truly great numbers. And let’s also remember that this company has $14.3 million in cash and no long-term debt. Steel is a global play, and I urge you to remain in CPSL for more exciting times ahead. Hold.
Uranium Energy (UEC – AMEX): Our small-cap uranium play is trading under our original buy price, but I still expect this monster of a company to rise. After all, they control more in-depth knowledge of uranium deposits in our country than anyone else. And with oil prices now exceeding $127 a barrel, it affirms my position that we could soon see another round of sharply higher prices for uranium stocks coming soon. Case in point, one of the most under-reported uranium stories was the fact that Greenpeace co-founder Patrick Moore recently wrote an article in the Washington Post Outlook section that supported nuclear energy.
This is an amazing turnaround. After all, Greenpeace has always fought vigorously against nuclear power, saying it’s an unacceptable risk to both the environment and to humanity. But Moore now says that his views have changed since founding Greenpeace. He now believes that using nuclear energy can help counteract catastrophic climate change from burning fossil fuels. Says Moore, “The 600-plus coal-fired plants emit nearly 2 billion tons of CO2 annually – the equivalent of the exhaust from about 300 million automobiles. Meanwhile, the 103 nuclear plants operating in the United States effectively avoid the release of 700 million tons of CO2 emissions annually.”
He continues…
“Nuclear energy is the only large-scale, cost-effective energy source that can reduce these emissions while continuing to satisfy a growing demand for power. And these days it can do so safely.”
Moore also points out that the average cost of producing nuclear energy in the United States was less than two cents per kilowatt-hour, comparable with coal and hydroelectric — and he predicts that advances in technology will bring the cost down further in the future. This is incredibly bullish for uranium, and on that note, I would be foolish not to have you to buy more UEC shares on the cheap. Buy.
Polymet Mining (PLM – AMEX): Let’s be on the lookout for another break out over $4.50. If you followed our advice earlier this year and bought PLM at the lows, then you quickly earned yet another double. Congratulations! This marks the second time in a two-year span that we’ve done this with PLM. As shares continue to run upwards, the stock remains a hold. Hold.
 | SPECIAL ANNIVERSARY OFFER! |
Before I go, I wanted to personally thank you for being part of our elite group of Bottarelli Research Small Cap members. On May 1st, we officially celebrated our one-year anniversary, and I want you to know that I value your membership tremendously. To show my appreciation, I’ve asked Bryan to offer a discounted renewal that knocks $500 off the cost of a 12-month subscription. As it stands now, the published price of a 12-month Bottarelli Research Small Cap subscription is $1,750. But for the next seven (7) days only, you can extend your current term by 12 more months for the heavily-discounted price of $1,250. This is the lowest price that Bryan has ever offered for this service, so please take advantage of this one-year anniversary special now!
PLEASE NOTE: I can only guarantee you this rate for the next seven days, so lock in this special one-year anniversary rate now by clicking the secure link below.
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This is my way of saying “thank you” for an incredibly fulfilling and exciting year of small-cap investing. I’m looking forward to uncovering even more of the market’s top small-cap winners in 2008 and beyond. So on that note, have a great weekend, and be sure to give thanks for the abundance in your life.
Sincerely,
Small-Cap Potential…Large-Cap Financial Stability
Why Gerdau Ameristeel Corporation (GNA – NYSE) is the Best Small Cap Steel Play You Can Buy Today
On May 5th 2008, we recommended shares of International Coal Group (ICO – NYSE), calling the company the “top small-cap coal play.”
In less than one month since making this recommendation, shares of ICO have gained 23.79%, validating our investing thesis.
So in today’s alert, we’re going to adopt this very same approach to the steel sector by recommending shares of Gerdau Ameristeel Corporation (GNA – NYSE).
Founded in 1970 and based in Tampa, Florida, GNA is the fourth largest overall steel company and the second largest mini-mill steel producer in North America. For over 60 years, they’ve provided the steel contained in skylines across the country.
In fact, GNA has the capacity to manufacture over 12 million tons of mill-finished steel products annually, which are used in a wide range of industries including construction, automotive, mining, cellular and electrical transmission, bridges, highways, stadiums, and commercial and apartment buildings. GNA operates through two steel segments: Mini-mills and Downstream Operations.
- Mini-mills: Manufactures and markets steel products like reinforcing steel bars, merchant bars, structural shapes, beams, special sections, coiled wire rods, and flat rolled sheets.
- Downstream Operations: Offers rebar fabrication and epoxy coating, railroad spikes, cold drawn products, and super light beam processing. They also produce elevator guide rails, grinding balls, wire mesh, collated nails, wire drawing, and fence posts.
Now I admit, writing about reinforcing steel bars doesn’t exactly provide “white-hot” editorial copy. But I’ll give it my best shot, starting with a valuation argument…
By any measure, GNA is a great value play. The stock carries a market cap of $7.15 billion, a forward P/E ratio of 9.84, a Price/Sales ratio of 1.19 and a Price/Book ratio of 1.79. By any valuation metric, these numbers represent a very attractively-priced stock. If you compare GNA’s valuation to other top steel names like Nucor (NUE – NYSE) and U.S. Steel (X – NYSE), you’ll see what I mean.
Starting with a simple P/E ratio comparison, GNA’s current P/E of 9.84 is tremendously less than NUE’s 16.03 and X’s 24.84. So right off the bat, GNA’s price to earnings ratio is currently 50% to 75% less than its competitors.
But what’ll really open your eyes is the fact that GNA has year-over-year quarterly revenue growth of 66%. Compare this to 32% quarterly revenue growth of NUE and 38% of X, and you’ll see that GNA has twice the revenue growth of other top steel companies with half the P/E ratio! Not only that, but GNA’s gross margins are better at 20.38% compared to 18.28% for NUE and 12.35% for X.
Consider this valuation comparison…
| Company | P/E Ratio | Quarterly Revenue Growth | Gross Margins |
| Gerdau Ameristeel (GNA – NYSE) | 9.84 | 66% | 20.38% |
| Nucor (NUE – NYSE) | 16.03 | 32% | 18.28% |
| U.S. Steel (X – NYSE) | 24.84 | 38% | 12.35% |
Any way you look at it, GNA is grossly undervalued compared to its competitors. And what’s more, GNA’s income statement shows trailing three month revenues of $5.81 billion, which amounts to $17.92 in revenue per share. And with year-over-year quarterly earnings growth of 112%, it’s plain as day to realize that shares of GNA have a lot of room to move higher.
But that’s not even the best part of the story…
You see, Gerdau Ameristeel is 66.5% owned by Gerdau S.A, who is the world’s 14th largest steel company. Based in Brazil, the Gerdau Group is more than a century old and is the largest long steel producer in the Americas — offering Gerdau Ameristeel unique stability in a highly cyclical industry.
In addition to the strong financial backing that Gerdau S.A. provides, the exchange of operating, engineering, and marketing skills offers Gerdau Ameristeel shareholders invaluable advantages that smaller steel firms cannot replicate.
So what you have is the growth and upside potential of a small-cap company combined with the expertise and financial stability of a large-cap. It’s a wonderful combination that’s not offered by too many other companies (if any at all).
Combine this with their attractive valuation statistics, a strong stock chart, and the global demand for steel, and you have all the makings for a truly powerful small-cap investment opportunity. Therefore, let’s add shares of GNA to our small-cap ledger now!
PLAY: Buy shares of Gerdau AmeriSteel (GNA – NYSE) at or under $18.00, good for the week.
ANNIVERSARY NOTE: Just to follow up on what Mark said about our special anniversary offer above, I must echo the fact that it’s been a tremendously fulfilling and successful year of small-cap investing. In fact, when I see our last eight (8) small-cap picks gain 33.72%, 16.83%, 46.94%, 23.79%, 23.73%, 16.03%, 11.92%, and 12.52% respectively, I can’t help but remain completely excited and motivated to continue bringing you the very best small-cap opportunities in the world.
To celebrate our success, we are offering a special renewal that gives you 12 additional months of Bottarelli Research Small Cap service for only $1,250 — the best deal ever offered since the inception of Bottarelli Research Small Cap.
I can only offer you this special rate for the next seven (7) days, so if you plan on being part of our elite small-cap group through the next year, then it makes sense for you to take advantage of this special renewal offer now. Just click the secure link below to login and renew your subscription.
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Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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