Steelmakers Positive On Recovery

Steel may not have the glamour of gold nor the sparkle of diamonds mined by mining giants like Vale (NYSE:RIO), Rio Tinto (NYSE:RTP) and BHP Billiton (NYSE:BHP), but investors should not forsake the opportunity the slumping economy has created for investments in steel manufacturers. Let's take a look at the top line revenue figures of steelmakers investors should consider.

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US Steel Cutting Cost
US Steel (NYSE:X) reported record net revenues of $23.8 billion for 2008 although revenues during the fourth quarter were significantly lower compared to the same period a year ago. Tubular steel was one of US Steels most profitable operating segments last year. It is expected to remain profitable into 2009. US Steel's CEO John P. Surma expects a consolidated operating loss during the first quarter of 2009, but still remains confident in US Steels focus on reducing costs, like its recent announcement of 500 employees taking early retirement, as a strategy to help the steelmaker prepare for the eventual return of customer demand. US Steel is down 20% year to date through February 12, 2009.

AK Steel's Pension Bites
AK Steel (NYSE:AKS) also recorded record net sales for 2008 of $7.6 billion aided by a 21% increase in its average selling price of steel from $1,080 in 2007 to $1,303 last year. Just like US Steel, AK Steel also incurred a drop in sales for its fourth quarter revenues along with a $699.5 million non-cash charge related to the company's pension plan. AK Steel is also expecting to incur an operating loss in the first quarter of 2009, but hopes to capitalize on lower raw material costs towards generating an operating profit by the second quarter. AK Steel CEO James L. Wainscott believes his firm is unique positioned to withstand the economic storm. AK Steel is down -10.84% since the beginning of the year.

ArcelorMittal Confident
It's difficult to mention steel and not include steelmaking giant ArcelorMittal (NYSE:MT). ArcelorMittal reported an increase in revenues for 2008 over the prior year to approximately $125 billion while reporting a 7% decrease in tonnage shipments. While aided by the same price increases that help AK Steel and US Steel improve revenues ArcelorMittal was also not immune to a drop off in demand during the fourth quarter. Echoing the positive sentiment of the other steel industry captains ArcelorMittal CEO Lakshmi N. Mittal is also confident that cost cutting measures will position the steelmaker for a future global economic recovery. ArcelorMittal is just about even year to date.

Final Thoughts
Focusing on top line revenues is one method investors can avoid accounting nuances companies may employ to manipulate net income and earnings results. The revenues of the steelmakers mentioned offer a window overlooking the current global slowdown. Investors can either take the pullback in prices of these steel makers as a sign of eminent disaster or an opportunity to employ dollar cost averaging (DCA) with the expectation of a future economic recovery.

To learn more about this strategy, read the Dollar Cost Averaging section of our Financial Concepts Tutorial.