Raw materials and metals are one of the very few sectors of the market which have provided relative safety to investors in 2010. As the global economy begins to recover, it pays to keep a close eye on which countries are showing significantly stronger GDP growth than the norm.
Mexico caught my eye. What I was looking for was a company that could benefit domestically from Mexico's growth, but also has had success selling its products internationally.
Let me introduce you to a company you've probably never heard of: Grupo Simec
Why Grupo Simec?
Hit the gas
Mexico's automotive industry looks poised to outpace growth in the U.S. thanks to its considerably lower labor costs. Although General Motors
It provides the automotive industry with axles, hubs, and crankshafts. Mexico's automotive growth should remain strong in 2010 while sales outside of Mexico have shown rapid improvement. This is a trend that could add a handsome profit to Grupo Simec's bottom line.
The right metal, the right price
Rising steel prices have translated into higher revenues and a healthier profit for the company year to date. Grupo Simec is currently trading well below book value, has more than $200 million in net cash, and has surpassed Wall Street's earnings-per-share expectations twice this year, making the stock attractively priced, in my eyes.
But I'm not done! Grupo Simec also maintains the strongest free cash flow margin of any of its major steel competitors. Over a trailing-12-month period, Grupo Simec sports a 5% FCF margin while competitors Nucor
A steel steal?
Really poor pun aside, Grupo Simec appears in good shape to benefit from any uptick in global steel demand. It has excellent financial flexibility and growth appears to be back on track after a rough 2008, but only time will tell if it can translate this momentum into creating value for shareholders.
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