Stelco was part of United States Steel until 2017. US Steel spun out its Canadian operations into a new business, which is now Stelco. In the last 4 years Stelco has reduced its debt to zero, so all profits are now available to shareholders.
Why would a value investor consider an investment in Stelco?
The main reason for considering an investment in Stelco is the current low price to earnings number. Stelco had made investments since 2017, which meant that when market conditions became favourable during 2021, Stelco was in position to take advantage. So, during 2021 Stelco made record revenue and profits, which is a partial explanation for the low PE number.
The record profits at Stelco means that the company could complete $164 million of share buybacks in Q1 2022 and Stelco has just increased its dividend by 30%.
As an industrial concern Stelco, is exposed to the wider economy and good years can be followed by bad years. However, the current cheapness of the common stock in comparison to earnings provides some protection for value investors in the long-term. The low debt levels also means that there is a good chance that common stockholders will proper even in an economic downturn.
The price action of the stock can be seen in the chart below.
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