We recently maintained our Neutral recommendation on
), anticipating the company to perform in line with the broader
GERDAU SA ADR (GGB): Free Stock Analysis
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Over the long-term, Gerdau seems well positioned to leverage
benefits from the rising wave of infrastructural requirements in
the domestic and international markets. The World Steel
Association predicts global steel consumption to grow 3.1% in
2013 and 3.3% in 2014. Instabilities in the U.S. and the Eurozone
are abating while China has recently shown solid signs of growth,
favoring overall growth prospects of steel makers.
The domestic market for Gerdau will receive a boost as Brazil
prepares to host major sporting events in the coming years and
make major investments in infrastructure. These include
development of ports, railroads, airports, wind farms and roads,
To meet the rising demand from the emerging economies of India
and Japan as well as that of the United States, Gerdau plans to
invest roughly R$8.5 billion from 2013 through to 2017. Efforts
are being made to increase production of iron ore and flat steel
in Brazil, special bar quality in both Brazil and the United
States and special steel in India.
Despite bright long-term growth prospects, concerns surrounding
Gerdau in the near-term have forced us to remain on the sidelines
regarding the company. Risks emanating from higher cost of sales,
increasing competition, disruptions in the supply of raw
materials and foreign currency fluctuations among others, pose a
threat to the growth of Gerdau.
Others Stocks to Consider
Gerdau currently has a market capitalization of $13.5 billion.
Other stocks to watch out for in the industry include
Companhia Siderurgica Nacional
), with a Zacks Rank #1 (Strong Buy). Of two others,
United States Steel Corp.
General Steel Holdings, Inc.
) carry Zacks Rank #2 (Buy).