Steel industry giant ArcelorMittal’s profits are worth waiting for

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The biggest steel maker in the world, ArcelorMittal ( MT , quote ) has a great deal of appeal for emerging market investors. Now trading close to its 52-week low, this is a steel industry stock income, growth and value investors should accumulate for the long term.

[caption id="attachment_61556" align="alignright" width="300" caption="Lakshmi Mittal"] Image courtesy of Stephen Schwartz: http://www.flickr.com/people/32501461@N00 [/caption]

Created by a series of mergers and acquisitions, ArcelorMittal is like the British Empire of yore: the sun never sets on its holdings.

It has coal mines located in Kazakhstan, Russia, the United States, and India, and iron ore mines in Algeria, Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine, the United States, Canada, Mauritania, and India.

The company is led by Lakshmi Mittal, the chairman and chief executive officer, who owns 40% of the shares and voting shares in the company. Mittal is one of the richest men in the world, but his net wealth has fallen with the share price of his company .

The stock price has been trading at $14.12, a new low, while the 52-week high for ArcelorMittal is $34.31. With the stock price so close to its bottom, the dividend yield is at its highest - over 5%. That is more than twice the average paid by a company on the S&P 500 Index.

ArcelorMittal also has low valuations. The price-to-book ratio is 0.40, which means the share price is less than the value of the assets. The price-to-sales ratio is just 0.25, i.e. the stock sells for a quarter of its annual revenues. Obviously ArcelorMittal is very appealing to value investors.

For growth investors, earnings-per-share are expected to rise by 50% next year. Over the next half decade, earnings-per-share growth is expected to check in at 25.12%. Due to the global slowdown, on a quarterly basis sales are only up 2.34%.

ArcelorMittal's mergers and acquisitions have eaten into its profits, and its profit margin is only 1.26%. That's miles below Brazilian steel industry competitor Companhia Siderurgica Nacional ( SID , quote ), which has a profit margin of 26.99%.

The return-on-equity for ArcelorMittal is only 2.03%, compared to an average ROE of around 15%. For Companhia Siderurgica Nacional, the return on equity is 50.55%.

The low profit margin is a problem, but Soviet Marshal Georgy Zhukov once observed that, "Quantity has a quality of its own." Eventually ArcelorMittal will grow its profit margin and return-on-equity into a size comparable to that of the rest of the company. Until then, emerging market growth, income and value investors can pick up shares in this steel industry behemoth at a discount.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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