A Steely Look at ArcelorMittal's 2012

The new year is here and that means that it's a perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.

Today I'm going to take a look at ArcelorMittal (NYSE: MT  ) , the global steel giant that got knocked around by Mr. Market in 2011. Could 2012 be a better year for investors? Let's dig in.

The tale of the tape

Market Cap $29.7 billion
Dividend Yield 4.0%
Price-to-Book Value 0.53
Forward Price-to-Earnings 6.8
Expected Five-Year Growth 17.9%

Sources: S&P Capital IQ and company filings.

The keys for 2012
Investors will obviously want to keep an eye on all facets of ArcelorMittals' business as it forges ahead, but I think there are three areas that deserve extra focus: the global economy, growth initiatives, and the stock's valuation.

It doesn't take any special materials-sector expertise to understand that what the global economy does in 2012 will have a major impact on ArcelorMittal's ability to deliver. When the economy is feeling ill, construction and manufacturing slow down, and that's bad news for steel companies. And though the economy has come a long way from 2009, as 2011 closed out, many major economic indicators weren't exactly looking robust.

ArcelorMittal does about a quarter of its business in North America, so a recovery in the U.S. would certainly benefit the company. However, the company leans even more on Western Europe, so it would be even more beneficial if the European Union could make real progress on the region's debt problems. Growth-wise, though, the company has been expanding its presence in areas like Eastern Europe and India, so we don't want to overlook the importance of continued growth in emerging-market economies.

In terms of specific sectors that Arcelor sells into, investors may want keep an eye on autos. Worldwide, the company is No. 1 in automotive steels. It has a 19% market share globally and 35% share in the large U.S./Canada market. Looking further ahead in 2012, major automakers like Ford (NYSE: F  ) and General Motors (NYSE: GM  ) will themselves be seriously dependent on the state of the economy. However, better financial health at GM and well-received new models from Ford certainly won't hurt as far as getting more cars sold.

While much of investors' focus should stay on the economy, we'll also want to watch ArcelorMittal's growth spending. The company is aggressively going after opportunities it sees -- a primary one being becoming more vertically integrated with its own mining operations. This could play well for the company over the long term, but investors will want to make sure that the investments are actually paying off and that the company isn't imperiling its balance sheet in the process.

Finally, I think the stock's valuation will be a key issue in 2012. One of the primary reasons that I ended up buying Arcelor for my personal portfolio was the eye-catchingly cheap valuation on the stock. As you can see from the table above, Mr. Market is letting investors snap up shares at what appears to be a bargain price. The question for 2012 is whether the company proves that it has been selling at a bargain, or whether chinks in the company's armor reveal that the market was right to value shares as low as they have.

The one number I love
The past year was a tough one to be an ArcelorMittal shareholder. But for most Foolish investors, an investment isn't about the change in a stock price over a single year. In the case of Arcelor, I think we're looking at a high-quality company that's selling at a very attractive price. That's why I'm keeping it in my personal portfolio and leaving it as an outperform in my Motley Fool CAPS portfolio.

And while I don't like to see Arcelor's stock struggling, the stock's nice dividend payout makes it much easier to hold on through rough patches. Of course, Arcelor isn't the only great dividend-payer you can buy. You can find a bunch of other high-quality dividends in The Motley Fool's special report: "Secure Your Future With 11 Rock-Solid Dividend Stocks."

The Motley Fool owns shares of Arcelor Mittal and Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have also recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of ArcelorMittal, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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11/21/2014 2:23 PM
MT $12.48 Up +0.41 +3.40%
ArcelorMittal CAPS Rating: ****
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GM $32.14 Up +0.01 +0.03%
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