NEW YORK (TheStreet) -- Last week, AK Steel (AKS) - Get Report stock surged after Goldman Sachs analysts upgraded it to buy from neutral with 27% upside based on the notion the iron-ore prices should continue to fall.
While these analysts believe that AK Steel stock is "significantly undervalued" right now,
wanted to know if our readers felt the same way, so we published
The response was overwhelmingly positive, with 81.3% of the voters agreeing with the sentiment that, "the stock is greatly undervalued right now and the upside potential is great." A mere 18.7% of
users said agreed with the that "the stock price still has potential to go even lower."
The Goldman Sachs analysts say that AK Steel is especially sensitive to changes in iron-ore prices because it isn't backward integrated into iron ore. As spot iron ore prices climbed and contractual agreements between the miners and steel producers worldwide changed from annual to quarterly contracts, "AK Steel stock came under heavy pressure," Goldman analysts Sal Tharani and Sandeep SM wrote in their investor note. "Only a short while ago, when spot prices rose to high levels in China, and market expectations for future quarterly contracts rose, AK Steel, being not integrated into raw material, fell out of favor and the stock underperformed its peers," such as
Thus, the reduction in iron-ore prices should benefit AK Steel and provide it with substantial upside potential. The analysts also like that AK Steel has been able to improve operating leverage in recent years through better cost control, helped by labor reduction and lower legacy costs.
Meanwhile, the stock is still susceptible to downside risks including a sharp deterioration in auto and electrical steel demand, and increases in iron ore and coking coal prices.
AK Steel stock has edged up 0.1% to $13.45 Monday morning, while U.S. Steel is down 1.1% at $40.92.
AK Steel Stock: Is There More Upside?
-- Reported by Andrea Tse in New York
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