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Remember the show, “The Six Million Dollar Man”? The theme song went dann na na naahhh na na naaah naa naaah naa naa naaa naaa” Then they would show him running on a treadmill til you couldn’t see his legs any more and you’d hear this innnh innnh innnh noise when he lifted something heavy. We have the technology.
Anyway, there was a great episode in which heavyweight boxing champ Larry Holmes was a guest star. At the end of this particular episode, Larry Holmes and Steve Austin (the Six Million Dollar man, not the pro wrestler) were beating up the bad guys. Inadvertently, the Six Million Dollar man slugged Larry Holmes in the chin. Much to his surprise, Holmes said, “Thteeve, your arm feeelths like it is made of thteeel.”
That’s right, Larry. Steel. When I was 10 yrs old, I worked in my Uncle Robert’s small grocery store, Mediterranean Imports, on the weekends. It was a really cool store, with big wooden barrels full of olives floating in water.
When all the local teenagers came in to the store to hang out and shoplift, my uncle used to send me to the corner of the store to watch them. Sometimes they would spit in the olive barrels. Now even as a 10 yr old, these 17 yr old scrawny punks were no match for $$$MR. MARKET$$$. However, my Uncle Robert didn’t want me to beat the crap out of them, instead he wanted me just to watch them. My Uncle Robert was a good businessman, and he didn’t want to lose any customers by having his 10 year old nephew knock their teeth out. Anyway, we had a code word. Whenever I saw the teenagers shoplifting, I was to use a clever code phrase was, “Uncle, these shelves are made of steel.” You see, by using the homonym for “steal”, the teenagers would not know that I had just caught them in the act and was conveying this information to the boss, because I was saying “steel” and not “steal”. How clever, right?
Then my uncle would take out a two by four board or something and yell at them. He’d say, “Go from here. Go to Superette”. Now the name of this other store was not really “Superette”, it was called “Spring Valley” but it was a superette. So whether or not the teenagers actually knew how to find this store when they were chased out of Mediterranean Imports, I don’t know. Meanwhile, my Uncle’s accounting methods weren’t so hot, so I used to give myself a raise whenever I felt I deserved it. That’s the name of the game, if you know what I mean.
So the moral of the story is that there are many ways to use steel and that’s why I bought a steel company today. Today I bought GGB (Gerdau S.A.) at 20.52 I will sell it in 4 – 6 weeks at 23.62. Here’s why I like GGB:
GGB stock is up 87% over the last 12 months yet its PE is a really really low 6.7. This stock also pays a 4% dividend. I mean come on now, how much more does anyone need to know. This stock is a bargain! Oh for heaven’s sakes.
Over the last 6 months, the r-squared for the time series price regression is 0.82…for the last 3 months it is 0.88. Look at the chart:
On January 16, 1901, German immigrant Joao Gerdau opened a tiny nail factory in the southern Brazilian state of Rio Grande do Sul, marking the birth of a company that would one day rank among Latin America's largest steelmakers.
These days, as Gerdau's heirs prepare for the company's 100th anniversary Gerdau S.A. has much to celebrate. Not only is it the world's largest nail manufacturer, the family-controlled conglomerate is Brazil's largest producer of steel products for construction. It is also arguably Brazil's truest multinational corporation.
As World War II ended the family was still making nails. But in the early postwar years, commodity imports were severely restricted, and the nail factory struggled to find raw material. To secure supplies of steel, Gerdau in 1948 bought the majority stake in a local steel mill.
It turned out that making steel suited Gerdau. By the late 1960s, the steel mill had saturated local demand. Gerdau decided to expand. In 1967 he acquired a minimill in So Paulo and over the next decade added more minimills throughout Brazil. To raise expansion capital, Gerdua in 1970 took one of the mills public on the Rio de Janeiro and So Paulo stock exchanges. Their other mills later followed suit.
Brazil's Gerdau brothers--Jorge, Klaus, Germano and Fredericoare the fourth generation of their family to run Gerdau S.A. and run it like they mean business. Based in the southern Brazilian city of Prto Alegre, Gerdau is Brazil's largest producer of long steel (which is used primarily in construction).
The patriarch died in 1983; his sons had spent their careers in the business and were ready to take over. Fortunately for the family and the company, each son had developed a specialty he was happy to pursue, with the result that Gerdau was spared the sibling infighting that has destroyed many a family business. Today Jorge, 63, the company CEO, oversees human resources and planning; Germano, 68, handles the commercial division (Gerdau also has the biggest steel-trading operation in Brazil); Klaus, 65, takes care of technology, the industrial area and factory investments; and Frederico, 58, oversees finance and administration. Now don’t get me wrong, if I inherited this steel company, I’d be on the beach at Ipanema naked naked naked all live long day.
Gerdau is a leading steel producer in Brazil with operations in both South and North America. The company operates steel mills and plants in Argentina, Brazil, Chile, and Uruguay. In the North American market the company operates through its subsidiary Gerdau Ameristeel. Currently Gerdau has crude steel installed capacity of 14.6 million tons/year, 45% in North America and 55% in South America. Sales inside Brazil accounts for 36% of total sales, sales in North America reaches 48% of total sales and the South American operation outside Brazil accounts for 16%.
The company’s rolled products include rebars, merchant bars, and profiles. Its drawn items include barbed and barbless fence wires, galvanized wires, fences, concrete reinforcing wire mesh, nails, and clamps. Gerdau produces specialty and stainless steel used in tools and machinery, chains, fasteners, railroad spikes, and special coil steel. It also produces special section profiles, such as grader blades, smelter bars, light rails, light I-beams, and elevator guide rails.
You all remember RIO (Companhia Vale do Rio Doce ) right? Some of you may have even made some money on this stock. Well the reason you did is because there is a strong demand for iron ore. The reason there is a strong demand for iron ore is because there is an even stronger demand for steel. N’est pas?
The management of Gerdau sure feels that way as they have authorized the repurchase of 6,500,000 preferred shares, representing approximately 3.16% of outstanding stock, which totaled 205,393,936 shares on April 30th, 2005. They must think it’s a pretty good deal. The family still has a huge stake still in the company.
The global economic recovery and the strong demand in China and in other Asian countries, as well as in the European Union, have driven the consumption of steel and favored a rise of prices in the international market, which made 2004 a year of records in the steel sector. For the first time, the world-wide production of steel exceeded one billion tons, surpassing by 8.9% the volume produced in 2003. In Brazil, the sector also recorded figures never attained before, with a production of 32.9 million tons of steel, 5.7% higher than in 2003, and exports surpassing the US$ 5.0 billion mark.
Consolidated sales in 2004 totaled 12.6 million tons, 3.4% higher than the sales in 2003. In North America, 5.4 million tons were sold, 5.3% more than in the previous year, and at the units in Chile, Uruguay and Argentina, the volume reached 520.4 thousand tons, an increase of 25.0%. Operations in Brazil were responsible for 52.8% of the consolidated sales, totaling 6.6 million tons.
With this vision, Gerdau is implementing a US$ 3.2 billion investment program over the next three years, with the purpose of expanding installed capacity, with a view to meeting the growth in demand both in Brazil and abroad, and to keep its industrial plant competitive in the international market. Gerdau recently invested R$ 1.4 billion in the steelmaking district of Santa Cruz is scheduled to be completed by 2007. With this expansion, the Group’s annual steel production capacity in Rio de Janeiro will increase 117%, from 1.2 million metric tons to 2.6 million metric tons. Annual production capacity of rolled products – rebar, bars, profiles, wire rod and steel angles – will increase from 1.3 million metric tons to 2.1 million metric tons. The funds will be sourced 50% from the company’s capital and 50% from credit lines from the Brazilian Development Bank (BNDES) and suppliers. This doesn’t sound like a project investment based on forecasts of a decline in steel demand, does it?
And they make some awesome steel. Three out of every four construction professionals in Brazil prefer Gerdau's GG 50 rebar which won the 11th Pini Prize for best civil The main highlights were in the North, where GG 50 rebar received 92% of the votes, and in the Northeast, where GG 50 rebar received 87% of the votes. In the other regions, GG 50 was also considered the best rebar by a majority of survey participants: South (83%), South East (71%) and Central West (70%). Buy the best they always say…
Gerdau is studying plans to enter Eastern European and Asian markets and is focusing particular attention on the specialty steel segment. Their management team is strong, and Gerdau has one of the best-defined long-term strategies of all South American steelmakers in terms of where they'll be in the next five to 10 years. Gerdau's strong presence in construction serves the company well, with Brazil's building industry expected to expand by at least 4 percent per year this decade. Usually the consumption of steel in Brazil is linked to GDP, so as GDP grows, they will see huge growth in demand for steel products for civil construction projects. Gerdau is the one supplying this steel.
Gerdau, as North America's fourth-biggest steelmaker, is the hemisphere's largest producer of long-steel products such as the reinforcing rod used to repair roads and bridges and the nails and angle irons that may help rebuild homes in New Orleans and beached casinos in Mississippi. Half of Gerdau's revenue comes from North America and its focus is on the U.S. South that was affected by Katrina
``Within a distance of one day's truck or rail travel time to New Orleans, we have seven steel manufacturing facilities with close to four million annual tons of steel capacity,'' said Phillip Casey, chief executive of Gerdau Ameristeel Corp., Gerdau's Tampa, Florida-based unit, in an e-mail response to questions from Bloomberg.
It’s great that this family run business can help us out in our time of need. But how does all this make the stock price go up? Earnings….earnings…earnings.
If you look at the revenue growth, GGB has done 2.2 billion dollars per quarter the last 3 quarters. Just tack on a little growth and look for total revenues in 2006 to be $9.4 billion dollars (8% growth over last year) which will generate net income of $3.35/share. Pre tax margins are now near their 5 year high, so these incremental revenues will creep to the bottom line.
Give the stock a little more reasonable multiple of 8 (remember it pays a 4% dividend..it can’t get any cheaper unless earnings deteriorate) and this translates to a share price of $26.80 which is past my targer sell price.
Now this family business may never grow to be as great as Mediterranean Imports once was, but for once, I want to be like those 17 yr old kids hanging out in that store. Buying this stock now is a real steal…..steel….whatever.
I am HUGE!
$$$MR. MARKET$$$
Like this write up? Send it to 3 friends.
Anyway, there was a great episode in which heavyweight boxing champ Larry Holmes was a guest star. At the end of this particular episode, Larry Holmes and Steve Austin (the Six Million Dollar man, not the pro wrestler) were beating up the bad guys. Inadvertently, the Six Million Dollar man slugged Larry Holmes in the chin. Much to his surprise, Holmes said, “Thteeve, your arm feeelths like it is made of thteeel.”
That’s right, Larry. Steel. When I was 10 yrs old, I worked in my Uncle Robert’s small grocery store, Mediterranean Imports, on the weekends. It was a really cool store, with big wooden barrels full of olives floating in water.
When all the local teenagers came in to the store to hang out and shoplift, my uncle used to send me to the corner of the store to watch them. Sometimes they would spit in the olive barrels. Now even as a 10 yr old, these 17 yr old scrawny punks were no match for $$$MR. MARKET$$$. However, my Uncle Robert didn’t want me to beat the crap out of them, instead he wanted me just to watch them. My Uncle Robert was a good businessman, and he didn’t want to lose any customers by having his 10 year old nephew knock their teeth out. Anyway, we had a code word. Whenever I saw the teenagers shoplifting, I was to use a clever code phrase was, “Uncle, these shelves are made of steel.” You see, by using the homonym for “steal”, the teenagers would not know that I had just caught them in the act and was conveying this information to the boss, because I was saying “steel” and not “steal”. How clever, right?
Then my uncle would take out a two by four board or something and yell at them. He’d say, “Go from here. Go to Superette”. Now the name of this other store was not really “Superette”, it was called “Spring Valley” but it was a superette. So whether or not the teenagers actually knew how to find this store when they were chased out of Mediterranean Imports, I don’t know. Meanwhile, my Uncle’s accounting methods weren’t so hot, so I used to give myself a raise whenever I felt I deserved it. That’s the name of the game, if you know what I mean.
So the moral of the story is that there are many ways to use steel and that’s why I bought a steel company today. Today I bought GGB (Gerdau S.A.) at 20.52 I will sell it in 4 – 6 weeks at 23.62. Here’s why I like GGB:
GGB stock is up 87% over the last 12 months yet its PE is a really really low 6.7. This stock also pays a 4% dividend. I mean come on now, how much more does anyone need to know. This stock is a bargain! Oh for heaven’s sakes.
Over the last 6 months, the r-squared for the time series price regression is 0.82…for the last 3 months it is 0.88. Look at the chart:
On January 16, 1901, German immigrant Joao Gerdau opened a tiny nail factory in the southern Brazilian state of Rio Grande do Sul, marking the birth of a company that would one day rank among Latin America's largest steelmakers.
These days, as Gerdau's heirs prepare for the company's 100th anniversary Gerdau S.A. has much to celebrate. Not only is it the world's largest nail manufacturer, the family-controlled conglomerate is Brazil's largest producer of steel products for construction. It is also arguably Brazil's truest multinational corporation.
As World War II ended the family was still making nails. But in the early postwar years, commodity imports were severely restricted, and the nail factory struggled to find raw material. To secure supplies of steel, Gerdau in 1948 bought the majority stake in a local steel mill.
It turned out that making steel suited Gerdau. By the late 1960s, the steel mill had saturated local demand. Gerdau decided to expand. In 1967 he acquired a minimill in So Paulo and over the next decade added more minimills throughout Brazil. To raise expansion capital, Gerdua in 1970 took one of the mills public on the Rio de Janeiro and So Paulo stock exchanges. Their other mills later followed suit.
Brazil's Gerdau brothers--Jorge, Klaus, Germano and Fredericoare the fourth generation of their family to run Gerdau S.A. and run it like they mean business. Based in the southern Brazilian city of Prto Alegre, Gerdau is Brazil's largest producer of long steel (which is used primarily in construction).
The patriarch died in 1983; his sons had spent their careers in the business and were ready to take over. Fortunately for the family and the company, each son had developed a specialty he was happy to pursue, with the result that Gerdau was spared the sibling infighting that has destroyed many a family business. Today Jorge, 63, the company CEO, oversees human resources and planning; Germano, 68, handles the commercial division (Gerdau also has the biggest steel-trading operation in Brazil); Klaus, 65, takes care of technology, the industrial area and factory investments; and Frederico, 58, oversees finance and administration. Now don’t get me wrong, if I inherited this steel company, I’d be on the beach at Ipanema naked naked naked all live long day.
Gerdau is a leading steel producer in Brazil with operations in both South and North America. The company operates steel mills and plants in Argentina, Brazil, Chile, and Uruguay. In the North American market the company operates through its subsidiary Gerdau Ameristeel. Currently Gerdau has crude steel installed capacity of 14.6 million tons/year, 45% in North America and 55% in South America. Sales inside Brazil accounts for 36% of total sales, sales in North America reaches 48% of total sales and the South American operation outside Brazil accounts for 16%.
The company’s rolled products include rebars, merchant bars, and profiles. Its drawn items include barbed and barbless fence wires, galvanized wires, fences, concrete reinforcing wire mesh, nails, and clamps. Gerdau produces specialty and stainless steel used in tools and machinery, chains, fasteners, railroad spikes, and special coil steel. It also produces special section profiles, such as grader blades, smelter bars, light rails, light I-beams, and elevator guide rails.
You all remember RIO (Companhia Vale do Rio Doce ) right? Some of you may have even made some money on this stock. Well the reason you did is because there is a strong demand for iron ore. The reason there is a strong demand for iron ore is because there is an even stronger demand for steel. N’est pas?
The management of Gerdau sure feels that way as they have authorized the repurchase of 6,500,000 preferred shares, representing approximately 3.16% of outstanding stock, which totaled 205,393,936 shares on April 30th, 2005. They must think it’s a pretty good deal. The family still has a huge stake still in the company.
The global economic recovery and the strong demand in China and in other Asian countries, as well as in the European Union, have driven the consumption of steel and favored a rise of prices in the international market, which made 2004 a year of records in the steel sector. For the first time, the world-wide production of steel exceeded one billion tons, surpassing by 8.9% the volume produced in 2003. In Brazil, the sector also recorded figures never attained before, with a production of 32.9 million tons of steel, 5.7% higher than in 2003, and exports surpassing the US$ 5.0 billion mark.
Consolidated sales in 2004 totaled 12.6 million tons, 3.4% higher than the sales in 2003. In North America, 5.4 million tons were sold, 5.3% more than in the previous year, and at the units in Chile, Uruguay and Argentina, the volume reached 520.4 thousand tons, an increase of 25.0%. Operations in Brazil were responsible for 52.8% of the consolidated sales, totaling 6.6 million tons.
With this vision, Gerdau is implementing a US$ 3.2 billion investment program over the next three years, with the purpose of expanding installed capacity, with a view to meeting the growth in demand both in Brazil and abroad, and to keep its industrial plant competitive in the international market. Gerdau recently invested R$ 1.4 billion in the steelmaking district of Santa Cruz is scheduled to be completed by 2007. With this expansion, the Group’s annual steel production capacity in Rio de Janeiro will increase 117%, from 1.2 million metric tons to 2.6 million metric tons. Annual production capacity of rolled products – rebar, bars, profiles, wire rod and steel angles – will increase from 1.3 million metric tons to 2.1 million metric tons. The funds will be sourced 50% from the company’s capital and 50% from credit lines from the Brazilian Development Bank (BNDES) and suppliers. This doesn’t sound like a project investment based on forecasts of a decline in steel demand, does it?
And they make some awesome steel. Three out of every four construction professionals in Brazil prefer Gerdau's GG 50 rebar which won the 11th Pini Prize for best civil The main highlights were in the North, where GG 50 rebar received 92% of the votes, and in the Northeast, where GG 50 rebar received 87% of the votes. In the other regions, GG 50 was also considered the best rebar by a majority of survey participants: South (83%), South East (71%) and Central West (70%). Buy the best they always say…
Gerdau is studying plans to enter Eastern European and Asian markets and is focusing particular attention on the specialty steel segment. Their management team is strong, and Gerdau has one of the best-defined long-term strategies of all South American steelmakers in terms of where they'll be in the next five to 10 years. Gerdau's strong presence in construction serves the company well, with Brazil's building industry expected to expand by at least 4 percent per year this decade. Usually the consumption of steel in Brazil is linked to GDP, so as GDP grows, they will see huge growth in demand for steel products for civil construction projects. Gerdau is the one supplying this steel.
Gerdau, as North America's fourth-biggest steelmaker, is the hemisphere's largest producer of long-steel products such as the reinforcing rod used to repair roads and bridges and the nails and angle irons that may help rebuild homes in New Orleans and beached casinos in Mississippi. Half of Gerdau's revenue comes from North America and its focus is on the U.S. South that was affected by Katrina
``Within a distance of one day's truck or rail travel time to New Orleans, we have seven steel manufacturing facilities with close to four million annual tons of steel capacity,'' said Phillip Casey, chief executive of Gerdau Ameristeel Corp., Gerdau's Tampa, Florida-based unit, in an e-mail response to questions from Bloomberg.
It’s great that this family run business can help us out in our time of need. But how does all this make the stock price go up? Earnings….earnings…earnings.
If you look at the revenue growth, GGB has done 2.2 billion dollars per quarter the last 3 quarters. Just tack on a little growth and look for total revenues in 2006 to be $9.4 billion dollars (8% growth over last year) which will generate net income of $3.35/share. Pre tax margins are now near their 5 year high, so these incremental revenues will creep to the bottom line.
Give the stock a little more reasonable multiple of 8 (remember it pays a 4% dividend..it can’t get any cheaper unless earnings deteriorate) and this translates to a share price of $26.80 which is past my targer sell price.
Now this family business may never grow to be as great as Mediterranean Imports once was, but for once, I want to be like those 17 yr old kids hanging out in that store. Buying this stock now is a real steal…..steel….whatever.
I am HUGE!
$$$MR. MARKET$$$
Like this write up? Send it to 3 friends.
But this could be even more complicated and risky, especially if you don't know what you're doing.
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