Mechel Open Joint Stock Company (MTL) is one of Russia’s largest mining and metals companies, producing steel, as well as processed coal and metal products used in mining industries. Mechel’s rise from relative obscurity has been rapid. Rising metals prices and industry consolidation have more than quadrupled Mechel’s sales from a mere $1 billion in 2001 to $4.4 billion last year.
In announcing its first half 2007 results on Oct. 3, Mechel confirmed that its breathtaking growth still is on track. Both business segments — mining and steel — demonstrated high operational results. Crude steel production was up 4% year-on-year, with rolled products up 11%. Coal output rose 10%, driven by a 29% rise in steam coal output. Nickel output also rose 22%.
But it was the company’s financial results that knocked analysts’ socks off. Revenue rose a whopping 55% to $2.99 billion during the first six months of 2007, compared to the same period of 2006. Earnings before interest, taxation, depreciation and amortization (EBITDA) rose 136% to $813.7 million. First-half 2007 net profit rose 169% to a better-than-expected $489.5 million. That record half-year profit blew out Wall Street’s average forecast of $468 million.
And two days after making that earnings announcement, Mechel announced that it had successfully won a $2.33 billion auction bid for coal assets in Yakutia, Russia. That is a big chunk for a company that has a market cap of only $10 billion. That acquisition will allow Mechel to create a world class, modern coal company. More than 60% of the coal produced there will be sold in Russia’s domestic market, where prices have soared by more than a third in recent months.
A combination of a favorable market environment, organic growth, and selective acquisitions means that Mechel is growing by leaps and bounds. Yet for all that, the stock trades at a lowly P/E of 11.
So buy Mechel (MTL) at market today, and place your stop at $42.50. For potentially even bigger upside, buy the April $80 call options (MTLDP.X).
A word of warning. The stock has roared ahead over the past few trading days, and may be due for a technical correction.
Your portfolio of Global Bull Market Alert picks has been racking up double- and triple-digit percentage gains in stocks and options like never before. The good times won’t last forever. But we’re going to let our profits run a little more than usual during this time of year.
DryShip’s (DRYS) soared almost 8% on Friday. With the stock up 63.76% over the last five weeks, and the options up 383.87%, let’s sell half of our options here and book some big profits. Hold on to the stock and the rest of the options for now.
Our other Russian play, Vimpel-Communications (VIP), has awoken from its month-long slumber. The stock now has firmly established upward momentum. VIP is up 17.94%, and the options are up 87.18%. Not bad for a trade we entered only four weeks ago.
BHP Billiton (BHP) also had a big week. The stock is now up over 38%, and our remaining options are up over 297%. Let your profits run in both for now.
Canada’s Potash (POT) continues to roar ahead. The stock is up 65.77%, and the options we recommended just last week already are up 38.76%. There’s juice left in both the stock and the options, so hold on for now.
Our Chinese momentum play — the Hong Kong ETF iShares MSCI Hong Kong Index (EWH) is back on track, with the options soaring 65% during the last two weeks.
To make room for this week’s pick, let’s close our position in Telvent Git S.A. (TLVT) at a loss. Despite the company’s strong fundamentals, the stock has sat on the sidelines during the recent bull market, and our short-term trading capital is better allocated elsewhere.
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