A Deep Value Play Investors Shouldn't Overlook

Daniel Cross - INO.com Contributor - Equities

The Fed might have finally raised rates this month, but it isn't a magic spell that automatically means that the global economy is strong. Oil is once again the leader of a sudden an aggressive bearish sentiment on Wall Street and stocks are suffering as a result.

The state of the global economy going into 2016 is still in question with energy markets yet again being the biggest concern for investors. The slowdown hasn't been kind to sectors like manufacturing either with many companies closing their doors or merging with other businesses in order to stay afloat. Those that have survived though have come out the other side sleeker, stronger, and have fewer competitors.

Despite the general malaise in the global economy, metal fabrication has remained relatively stable. Investments in new technologies and demand from growing industries like natural gas have helped the industry maintain steady growth amidst a tumultuous global environment. While the industry has been experiencing decelerating growth, overall projections for the next 12 months are positive.

Low energy costs have been favorable for manufacturers who have been able to operate more efficiently and the transportation sector has enjoyed similar benefits. The aerospace industry is currently undergoing a massive revamping with older models being retired in favor of newer titanium based designs – a high margin item for metal fabricators. New housing starts are estimated to rise significantly over the next few years as well with growth of 18% for 2016.

A Best In Breed Metal Fabricator For Sale

Allegheny Technologies (NYSE:ATI) is a $1.3 billion metal fabricator with a diverse range of specialty products and operations that span the globe. The company produces materials for a variety of sectors such as aerospace, energy, medical, automotive, food equipment and appliance, construction and mining.

The company predicts strong growth from its specialty titanium alloy segment that currently makes up 17% of total sales thanks to the airline industry. It also expects to benefit from the natural gas industry and the demand for corrosion-resistant alloys.

Fro a value standpoint, Allegheny's stock is attractively priced. It beat earnings for the 3rd quarter of 2015 with a loss of $0.29 per share as opposed to the $0.36 loss expected by most analysts. Despite the temporary negative earnings figures, the stock still has a number of positive ratios. Its price-to-sales ratio is just 0.33 and price-to-book is very low at 0.54. Essentially it means that if the company were to liquidate all assets, the stock would be worth double what it currently trades at.

Looking at Allegheny's chart doesn't reveal any major positive or negative trends.

Daily Chart of Allegheny Technologies (NYSE:ATI)
Chart courtesy of StockCharts.com

The stock is down big for the year – over 64% – but there's no bearish momentum or signals to suggest further declines here. Based on its RSI of 42.65 the stock doesn't appear to be oversold, so a rebound to the upside isn't likely to be quick, but there's no evidence that the stock will keep headed down either.

The key takeaway for this stock is its incredibly low price right now. The company itself has far more inherent value built-in, yet the stock has fallen victim to bearish investor sentiment regarding the global economy. All negative news has been priced into the stock which means any positive figures from manufacturing or global steel demand should cause this stock to reverse course immediately to the upside.

It's a deep value play that could take time to develop but has far more upside potential than down. Wall Street analysts have begun to pick up on this as well with the stock being upgraded in December by Rosenblatt from "neutral" to "buy" suggesting that this value stock may not be a secret for long. Based on earning projections for the next 12 months and estimating a fair P/E, Allegheny's stock is fairly priced at around $20 per share – an 81% increase over its current value.

Check back to see my next post!

Daniel Cross
INO.com Contributor - Equities

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

2 thoughts on “A Deep Value Play Investors Shouldn't Overlook

  1. lots of resource stocks are in the same position. long , big downtrend. year end tax loss selling. should get a new years bounce. not sure how big, but enough for a quick scalp maybe.

  2. For several months now, ATI has been enduring a strike by union workers. That likely has something to do with the weakness of this stock. Apparently no resolution to the strike is foreseen at this time.

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