Grupo Simec poised to benefit from any uptick in steel demand

As the global economy begins to recover, it pays to keep a close eye on which countries are showing significantly stronger GDP growth than the norm – such as Mexico.

Here’s a company that can benefit domestically from Mexico’s growth but also sells its products internationally: Grupo Simec (AMEX: SIM), a producer of special bar quality (SBQ) steel for non-residential construction and the automotive industry.

Mexico’s automotive industry is poised to outpace growth in the U.S. thanks to lower labor costs. For U.S. manufacturers looking to tap Mexico more, to reduce overhead costs, Grupo Simec offers axles, hubs and crankshafts. Rising steel prices have brought higher revenues and a healthier profit for the company this year.

Recently trading below book value, Grupo Simec has more than $200 million in net cash, and has surpassed Wall Street’s earnings-per-share expectations twice this year.

It also maintains the strongest free cash-flow margin of any of its major steel competitors. Keeping costs under control has allowed Grupo Simec to be more nimble than larger competitors. Over the past few years, it has grown through the acquisition of steel mills in the U.S. and Mexico.

Grupo Simec appears in good shape to benefit from any uptick in global steel demand, but only time will tell if it can translate its momentum into creating value for shareholders.

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My dumbest investment

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