"This Stock Poised to Gain from Mexican Steel Tariff, Morgan Stanley Reports"

Ternium Could Benefit from Potential Steel Tariffs on Mexico

Overview

According to Morgan Stanley analyst Carlos De Alba, Ternium, a steel producer, could potentially benefit from a tariff on steel imported from Mexico into the United States. De Alba reiterated his overweight rating on Ternium and named it as his top pick in the Latin American metals and mining sector. He set a price target of $51 for the stock, suggesting a potential 13.5% increase over the next year.

Rationale

De Alba explained that while Mexico exports more steel than it imports to the U.S., it is a net importer of flat products from its northern neighbor. Should the U.S. impose tariffs on steel produced in Mexico and Mexico retaliates, Ternium would be well positioned to benefit from this situation. The volume of steel imported from Mexico to the U.S. has significantly increased in recent years, highlighting a shift in the trade relationship.

Ternium's Advantage

Ternium's product mix, which focuses on steel types that are not commonly exchanged at high volumes between the U.S. and Mexico, makes the company well-positioned in the event of a steel trade disruption. This is because the majority of the trade consists of steel produced by other companies. De Alba also emphasized that Ternium has a positively skewed risk-reward ratio and has reached an inflection point in terms of profitability, making it an attractive investment opportunity.

Attractive Valuation and Strong Financials

Furthermore, Ternium is currently trading at an attractive absolute valuation compared to its 10-year average. The company also boasts a strong balance sheet with a solid net cash position, while still investing in ongoing growth. Investors can also expect an attractive dividend yield from Ternium. In summary, Ternium has the potential to benefit from potential steel tariffs on Mexico due to its unique product mix and strong financial position. As a result, Morgan Stanley has reiterated its overweight rating on the stock and named it as its top pick in the Latin American metals and mining sector.

Conclusion: Implications for New Businesses

Potential Opportunities

The potential steel tariffs on Mexico and the subsequent impact on Ternium present interesting implications for new businesses in the steel industry. While these tariffs may create challenges for some companies, they also open up opportunities for others. New businesses that are focused on producing steel types that are not commonly exchanged in high volumes between the U.S. and Mexico, similar to Ternium's product mix, could find themselves in a favorable position. By aligning their product offerings with the shifting trade relationship, these companies could potentially benefit from increased demand for their unique steel products.

Risk and Reward Considerations

New businesses entering the steel industry should carefully analyze the risk and reward dynamics of the current situation. Ternium, as highlighted by Morgan Stanley, has a positively skewed risk-reward ratio, indicating a potentially attractive investment opportunity. Similarly, new businesses should assess the profitability potential and evaluate their own risk appetite when considering market entry.

Market Valuation and Financial Stability

Additionally, new businesses should also carefully evaluate market valuations and ensure they are trading at attractive levels compared to industry averages. Strong financial stability, including a solid net cash position and an ability to invest in ongoing growth, should also be key considerations for new entrants. By adopting a conservative financial approach, businesses can position themselves for long-term success. In conclusion, while potential steel tariffs on Mexico may present challenges for some, they also offer new businesses in the steel industry an opportunity to carve out a niche market and leverage the shifting trade relationship. Careful analysis of risk and reward, market valuations, and financial stability will be crucial for new businesses looking to capitalize on this evolving situation. Article First Published at: https://www.cnbc.com/2023/07/27/this-stock-could-benefit-from-a-mexican-steel-tariff-morgan-stanley-says.html