NEW YORK (TheStreet) -- Based on the risk-adjusted performance of base metal stocks during the past six months, we believe that selloffs in these stocks was largely overdone on economic concerns: Vale (VALE - Get Report), BHP Billiton (BHP), Rio Tinto (RTP), ArcelorMittal (MT - Get Report), Steel Dynamics (STLD - Get Report) and POSCO (PKX - Get Report).We believe these stocks will stage a strong rebound in the upcoming weeks on bargaining opportunities, revisions in earnings estimates and price multiples. However, recent concerns related to slowing metal demand from China may offset the bargaining opportunities. In view of the current high volatility in the stock markets, we studied the performance of metal stocks in an attempt to provide insights into risk-adjusted returns during the past six months. A longer period may not reflect the current financial and operational efficiencies of the companies, as they may have changed through the restructuring efforts during the financial crisis. We have considered the following parameters for the U.S. listed base metal stocks in order to measure risk-adjusted performance. Alpha for six months: Alpha measures abnormal return of a stock over the theoretical expected return adjusted to the relevant risk called Beta. Beta for six months: Beta for a stock represents the relation of its returns with that of the financial market such as S&P 500 index. All metal and mining stocks have a positive beta, meaning that stocks generally follow the market. Current dividend yield: Estimated earnings per share for 2010 and 2011. Estimated long-term EPS growth rate and dividend yield. Multiples: We considered several, such as price-to-earnings and EV to EBITDA.
Concerns related to the impact of iron ore price hikes weighed heavily on AK Steel's stock since April 2008. However, steel selloffs on the concerns of the euro zone debt crisis are overdone, as the capacity utilization rates reported by the American Iron and Steel Institute on June 7, 2010 showed a rebound to the levels reported two weeks earlier. In addition to trading around 52-week lows, stocks of ArcelorMittal, Steel Dynamics and POSCO offer attractive P/E multiples of 9.6, 10.4 and 9.7, respectively. In comparison, AK Steel, U.S. Steel ( X - Get Report), and Nucor ( NUE - Get Report) are trading at P/E multiples of 14.3, 20.1 and 25.6, respectively. U.S. Steel and Nucor, with respective equity betas of 1.72 and 1.13, underperformed the S&P 500 by 1.95% and 2.65%, respectively, on risk-adjusted basis. Low beta value of Nucor can be attributed to its high dividend yield, which reduces the risk of the stock. Other steel producers, Gerdau Ameristeel ( GNA), Mechel ( MTL), Ternium ( TX - Get Report), Worthington Industries ( WOR - Get Report) and Schnitzer Steel Industries ( SCHN - Get Report), outperformed the S&P 500 on a risk-adjusted basis by 40.7%, 23.0%, 12.0%, 17.8% and 2.4%, respectively.