One would imagine that a company like that would be riding high under current circumstances. However, it has reported stagnant earnings over the first nine months of 2007, EPS remaining flat at $2.33/ADS.

More importantly, trends are bad for this company, since operating margins, reported at 29.4%, high relative to the industry norm of 17.5%, have declined dramatically year-over-year from 2006 levels of 37%.

Furthermore, the company, which in May 2007 acquired a premium pressure-control unit, Tenaris Hydril, has recently turned around and unburdened itself of this division to General Electric (GE - commentary - Cramer's Take) for the sum of $1.5 billion, arguing "lack of synergy with Tenaris' core tubing business." It's hard to see why this would be the case, since this division manufactures premium pressure-control products to be used in blowout prevention in underwater applications, and one would think there would be a lot of synergy.

In addition, Tenaris is facing a great degree of competition from its immediate competitor, Sumitomo Metals, market cap of $19.2 billion, which, although itself reporting a 7.5% decline in net income over the third quarter of 2007, is heavily investing in new processes in seamless steel tubing.

Furthermore, Sumitomo Metals has a 40% global share in premium joints used in seamless oil-drilling pipes, developed jointly with French company Vallourec. My outlook for Tenaris, as a result, is quite pessimistic, and I have decided to take a short position in this stock, despite a dividend yield of 2.3% and an undervalued price-to-cash-flow ratio, which, at 8.87, is below sector norms of 14.02. The recent one-year stock performance is quite different from its two-year increase. One-year returns and two-year returns were calculated at 33% and -10%, respectively.

Tenaris

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Source: Yahoo! Finance