POWR Income Stock of the Week: Ternium SA (TX)

NYSE: TX | TERNIUM S.A. ADR News, Ratings, and Charts

TX – The Federal Trade Commission has been on a crusade this year to stop mergers in their tracks with little regard to the size of the merger or the industry it was taking place in. But, with major setbacks being delivered by the courts the mergers and acquisitions markets are thawing, and one industry set to consolidate is the steel industry. This may be a boon for all the steel players involved, and one under the radar income play steel producer is Ternium.

The current economic cycle has been, in a word, unusual. Housing stocks have remained strong even as banks have failed and mortgage rates have skyrocketed. Infrastructure stocks have done very well, and there is currently a bidding war breaking out over U.S. Steel (X).  And consolidation in the steel industry should further lift the industry which has several stocks trading near all time highs. 

One steel stock which may not be on your radar, but should be, is Ternium (TX). Ternium trades as an ADR, and though headquartered in Luxembourg, focuses on the Central and South American steel markets. The company has 18 production centers across several countries, including the U.S., and 2 mining facilities in Mexico.

Demand for steel is strong in Mexico (where shipments reached an all time high in the recent quarter) and Brazil, two of Ternium’s main markets. The majority of Ternium’s steel goes to commercial clients, with the automotive industry in particular ramping up production and demand. Ternium makes flat steel used in a variety of construction projects as well as for appliances and automobiles. 

In its latest earnings report the company reported a 39% increase in shipments, which resulted in a 77% boost to quarterly net income. Ternium has two new facilities coming online, one a downstream finishing facility due to begin operations in mid-2024, and a new cold-rolling mill scheduled to open in 2025.  

The stock trades at just 5.3x projected earnings, only 0.5x sales, and around 1.9x cash holdings. Yet Ternium has gross margins just under 24%, and operating margins run close to 17%. 

On top of that, Ternium pays a nice 7.2% dividend. For reference, Steel Dynamics (STLD) pays a dividend yield just under 1.5% and U.S. Steel pays just 0.55%. 

Currently our POWR Ratings have Ternium rated as an A, or strong buy. The company ranks second of 32 stocks in the steel industry. Ternium has a high B ranking in three separate categories, Growth, Stability, and Quality. 

The stock is trading right at $40, but was well into the mid-$50s just a few years ago. Paying a great dividend, and in an industry looking to consolidate, Ternium deserves a close look as an income stock on the right path to continued profitability. 

 What To Do Next?

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TX shares were trading at $38.80 per share on Tuesday afternoon, down $0.94 (-2.37%). Year-to-date, TX has gained 36.99%, versus a 20.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Jay Soloff

Jay is a former professional market maker who cut his teeth trading on the floor of the CBOE. With more than 20 years of experience trading and investing, his focus is on making professional strategies accessible to everyone, which is exactly what does in his highly profitable POWR Income and POWR Stocks Under $10 investment advisory services. More...

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