Every time it seems as if the rally in steelmakers is about to fade, another headline rolls out of Asia to send the group up another notch.

The latest crack in the stocks came in early October, when leading producer

U.S. Steel

(X) - Get Report

plunged from $42 to $32 in a week. The recovery began in late October, when traders turned around U.S. Steel's seemingly broken chart and pushed it up nonstop for a month to an all-time high in the low $50s. The most recent jump came late last week on a report that a steel shortage would curtail Japanese auto production.

While many steel stocks are now very richly valued, one that seems relatively inexpensive is Canada-based

Novamerican Steel

(TONS)

. Shares of the flat-rolled and stainless-steel maker are up 80% in the past six months, but as a measure of how depressed it was prior to this run, it still goes for a puny price-to-earnings multiple of 6 and a price-to-sales multiple of 0.49, both of which are half the industry average.

In its most recent earnings report, on Sept. 28, Novamerican reported earnings-per-share growth of $2.17 in the third quarter, up 913% from the prior year. Over nine months, the company said it earned $4.97 per share -- up from 58 cents the prior year -- while revenue rose 50%.

If you assume earnings for the current quarter will be in line with the last, the fiscal year P/E will be 5. Compare that with counterparts such as

Gibraltar

(ROCK) - Get Report

, with a P/E of 14, or

Worthington

(WOR) - Get Report

at 11 and

AK Steel

(AKS) - Get Report

at 10. And these four competitors' earnings are expected to stagnate next year, while Novamerican management said in a recent press release that it expects "contract pricing in 2005 to be significantly higher than was realized in 2004." (There are no sell-side estimates for Novamerican.)

Games Traders Play

Novamerican has a relatively small float, which allows traders to push it around. According to

Reuters

, insiders own 75% of the shares, and value-oriented institutions like Heartland Advisors and Royce & Associates own another 11%.

This leaves a very small number of shares for traders to play around with when a hot steel story hits the wires. On Monday, Novamerican spurted to a new high from a five-month base on a volume surge that was eight times greater than normal.

Steel stocks are the flavor of the moment, just like energy stocks a few months ago and tech stocks back in the boom. Value investors don't typically get to play these sorts of games, as most momentum stocks are way out of our price range. So it's nice to find one that can be bought on its merits rather than just for a few days. Consider Novamerican on a return to the breakout zone in the $27 to $32 area, and then hold for another 20%-plus gain.

P.S. Don't forget -- now is a great time to get in on bargain stocks before the prices go up. Get my picks with a

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to

TheStreet.com Value Investor

.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Novamerican to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. At the time of publication, he had no positions in stocks mentioned. He also writes a weekly column for CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at

jon.markman@thestreet.com.

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