Please ensure Javascript is enabled for purposes of website accessibility

Why Mechel OAO (ADR)'s Shares Jumped 17% in August

By Reuben Gregg Brewer - Sep 9, 2015 at 9:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Two of Mechel's main business are in the dumps, so what changed that led to a big share advance in August?

What: Mechel OAO (ADR) (MTL -2.17%) saw a share price advance of 17% in August, which is just one more gyration in a year that's seen massive swings in the heavily indebted Russian mining, steel, and energy company's stock price.

So what: Interestingly, Mechel's shares started the month heading lower as fear of bankruptcy was pushing investors to run for the hills. At one point, the stock was down roughly 30% in August. When your largest lenders want to get paid and you don't have the cash, its understandable that your shareholders would be a little skittish.

But as the month drew to a close, it appeared that Mechel may be able to extract itself from the abyss -- or at least buy itself some more time. Indeed, it managed to get some of its lenders to agree to adjust the terms of its debt. And it's pushing more to follow suit. There's at least one big holdout, accounting for around 20% of its debt, but the news has been far more positive than negative lately.

So what: This is a highly speculative investment, at best. Essentially, the story is all about remaining out of bankruptcy court. That's not the type of bet most investors should be taking on. Clearly, it's a good thing if Mechel manages to get its debt restructured and survives to fight another day. So there's good reason for the stock price advance, assuming things get worked out, as it increasingly looks like they will.

But, and this is a big but, a debt deal will only buy the company time. A true turnaround is reliant on the improvement of the company's core operations. And since a big part of its core is mining coal and making steel, that's not looking too good right now. To buy here, you need to be confident that Mechel will both survive its current debt crisis and stay solvent long enough to see its core markets improve. Oh, and let's not forget that Russia, the country the company calls home, is facing financial sanctions right now. "Speculative" may be too soft a word.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mechel PAO Stock Quote
Mechel PAO
$2.25 (-2.17%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.