JJC:
When one of the wealthiest
people in the world,
Lakshmi Mittal, the CEO of
the largest steel producer
in the world...
Arcelor Mittal (MT)...
tells us, as he did this
very day that we're
"facing, for the first
time in decades, a
potential shortage in
steel"... well then, you
know... you know the steel
business is en fuego...
Of course, he's just
confirming something we've
suspected for a while on
this show, that there's a
steel renaissance going
on... and I think you
should be a part of it...
That's why I devoted my
Penn State show, back on
March 26th, to the
resurgence of steel,
interviewing Cramer-fave,
John Surma, the great CEO
of
United States Steel Corp.
(X),
when his stock was at,
let's see... $126.43. It's
up about 50% since then,
hitting a new high today.
There are numerous other
steel plays that we also
like on the show... many
hitting 52-week highs...
Okay, well that's great
for people who listened
and bought the steels...
But what if you missed,
and now think that it's
gone, and the golden move
is finished?...
Well, let me tell you
something... After hearing
what Mittal said today,
about a potential steel
shortage, I want to get
you in on another play,
and it's a lesser-known
steel play...
It's something that's a
little removed from the
actual making of steel...
so, therefore, I think it
still has room to run,
because it isn't that
discovered, all right...
So let me introduce you to
GrafTech International
Ltd. (GTI)...
the steel play you've
never heard of...
. . . .
.
Well, one of the reasons
is that GTI doesn't make
any steel at all... It
makes graphite
electrodes...
When you think of the
things you need to make
steel, like coking coal,
iron... energy... graphite
electrodes usually don't
come up, but in certain
kinds of steel making,
they're just as necessary
as traditional inputs.
These electrodes are used
in electric arc furnaces,
which steel makers use to
turn scrap into fresh
steel...
GTI's production goes to
electric arc furnaces, so
this is definitely a steel
play, because that's the
kind of furnace used to
make steel...
How does it work?...
You need one GTI
electrode, for every 8-10
hours that you run an
electric arc furnace, or
EAF. And, given the
strength of the steel
business right now, where
they're operating full
tilt, presumably creating
more demand for GTI's
products, okay...
for their electrodes...
The supply and demand
dynamics are so good, that
GTI has been able to raise
prices three times...
Joy Global (JOYG)
and
Bucyrus
(BUCY)
- the companies that make
machines to get at coal -
are the only ones that I
know that have been able
to put through those kinds
of price increases that
make equipment. This
is an overall 42% increase
in prices, and they are
not done...
. . . .
.
At the same time - and
this is terrific - there
are no major increases in
graphite electrode
capacity to come online
until 2009. This
reminds me very much of
Allegheny Technologies (ATI)
in 2006, which we
recommended, because we
knew there wasn't a lot of
new titanium coming on...
Then the titanium came on,
and that stock was over.
There's not a lot of GTI
competition coming on...
According to GTI's
management, their order
book is full through 2008.
Lakshmi Mittal is talking
about a steel shortage.
I think he should be
talking about a GTI
electrode shortage, as he
would know as
Arcelor Mittal (MT)
is, of course, one of
GTI's biggest customers.
I am not, by any means,
backing away from any of
the steel makers here...
The industry is so good,
especially in the United
States, where we have
great low costs, a weak
dollar, good labor
negotiations, lower
imports, where they're no
longer dumping in this
country... So, once
again, we are a net
exporter of steel. I
still see these stocks
going much higher...
particularly,
U.S. Steel (X),
Reliance Steel
(RS)
and our fave,
Nucor (NUE)...
as well as Fast Money
friend, Guy Adami's pick.
But now's the time to
start looking for the
companies that make the
equipment that steel
maker's need...
In terms of GTI's
longer-term prospects, it
looks like developing
economies like China may
shift toward using more
electric arc furnaces,
because of pollution
concerns... they're
actually starting to get
worried... are
leaning them to develop a
scrap steel recycling
industry... and
these electrode furnaces
are what you use to
recycle scrap.
More big business down the
line for GTI selling its
graphite electrodes to the
Chinese communists... who,
by the way, are the best
capitalists in the
world... and even they are
starting to worry about
environmental damage...
. . . .
.
GTI has been cleaning up
its balance sheet...
another reason to like the
stock. The company
called in its convertible
note... something that
should reduce its interest
payments by 9 cents a
share... In other
words, when you buy back
your debt, you increase
your earnings, okay...
Now, this $2.7 billion
company is only $320.9
million in debt.
That makes it a much
better buy than it used to
be.
Oh, can I mention GTI's
buyback?... A
repurchase authority of 3
million shares... 3% of
shares outstanding... a
respectable buyback...
. . . .
.
Now, GTI is more than just
a steel play...
It's got this new
technology-engineered
solutions business...
It makes insulation used
to produce silicon for
solar panels, and graphite
molds for deep-water drill
bits... Come on,
man... that's a troika!
Steel, renewable energy,
offshore drilling...
The engineered-solutions
business is growing at
20%... great margins...
maybe even better than the
graphite electrodes
business.
. . . .
.
I think GTI is pretty
cheap. The fact that
this is only at 11.8x
forward earnings mystifies
me, given its prospects...
But it is up from $16.
I still think that it's
got a long-term growth
rate of 12%, and the
company could do a whole
lot better than that,
given how strong the steel
business is, and GTI's
exposure to solar and
drill bits.
Hey, because it's so
cheap, I don't mind paying
a buck and change off the
52-week high.
The steel stocks have been
denizens on the new-high
list forever. We
can't just say, we missed
them, we missed them...
because they still
represent multi-year
opportunities.
Here's the bottom line...
. . . .
.
The Bottom Line!:
I'm looking for a
non-steel stock that's
benefitting from the
global renaissance...
I say look no further than
GrafTech International
Ltd. (GTI).