Economic Events and Market Reactions

These tables are based on Yahoo weekly economic event calendar. Put/call ratios, S&P500 volatility chang%, and 10yr treasure bond yield change % and S&P500 are recorded as market reaction. There are of course other market indicators to watch but for now these are the ones I use to understand the market and how they digest the economic releases.

August, 2010

September, 2010

AK Steel Holding Corporation --- AKS

AK Steel Holding Corporation (AK Holding) is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products through its wholly owned subsidiary, AK Steel Corporation (AK Steel). The 
Company’s operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania that produce flat-rolled carbon steels, including coated, cold-rolled and hot-rolled 
products, and specialty stainless and electrical steels that are sold in hot band, and sheet and strip form.


It would be interesting to check this stock's performance as we follow the slow recovery of economy. My analysis is based on financial ratio analysis model. 


AKS-----------Annual Financial Ratios


At first, the past four years' ratios are calculated as follows: 

Obviously, 2009 is the worst year for the company: lowered sales with decreased margins. And most of the efficiency ratios are low too. Good thing is the working capital (days) is still roughly in line with
previous years. In addition, the liquidity ratios such as current ratio, quick ratio are still in a healthy state.

When I look at the cash flows for the past four years, I found AKS has positive operating cash flow (OCF) although with a decreasing trend. The total CF are negative however it seems that the investing cash low is the key reason causing negative total cash flow. Therefore, the results are understandable onsidering the economic conditions during the past few years.

Well, so far no STOP light. The next questions I ask myself are how the company compares with peers and what's the performance of recent quarters.


AKS------------Comparisons with some peers

I selected a few US firms with an Latin ADR. TX for Latin is definitely doing better than all the US firms. Not surprising,right? US probably has the worse housing, auto, and maybe everything in 2009. And it seems the economic conditions will not get better soon.

There are a lot of information on the ratio comparison table. I'll just summarize a few takeaways:
1, TX's performance is the best among the group (i probably should also get a few chinese company to compare)
2, AKS is pretty good at margins compared to the rest of the group.And also pretty good at asset efficiencies.
3, AKS's leverage is highest one while the liquidity are fine. why? As I dig a little bit further I realized the pension liability is a very big chunk among the liabilities. Good or bad? In my opinion, it's not a big deal in short term. Not sure about long term.

Well, if you think US will still be the big place for projects (housing, auto,etc) needing steel products. AKS is the better choice among the group from above analysis. BTW, AKS' international sales is around less than 20%. And the litigation from Chinese steel makers will force US steel makers increase price which in turn reduces the competitiveness leading to sales slide. AKS just announced price increase yesterday in
the effort to compensate the increase of its raw materials' price. I expect the firm will see increased sales with further reduced margin in next quarter report.


AKS--------------Quarterly results

Gross margin is improving from  2009. The same goes with efficiency. Working capital efficiency is also improving. Other ratios also indicate the stability for AKS' performance.

AKS' future quarters will depend on the raw materials' price and demand. If 3rd quarter GDP still show growth and auto retail sales can pick up again, it might have a good run.

Again, pay attention to pension and stock options. It could be a stopper in the future.

Important economic indicators

From "Secrets of Economic Indicators...""
Coming up this week: employment situation and ISM.

Correlation between weekly initial jobless claim and Dow

Weekly initial jobless claim has been showing great correlation with equity market. In the following graph, seasonal adjusted weekly initial jobless claim is plotted together with Dow jones industrial average index. For the most recent three years, the correlation between the two is about -0.93. A very good indicator for the market so far.

400K is a crucial level below which economists would think less possibility of recession. So far the level is high around 470K and the four week moving average is tilting up.  (data is updated till 8/26/2010)

Relationship between GDP % change and Dow Jones Industrial Average

I put quarterly US GDP change percentage together with Dow index. DOW's data is based on the second estimate dates of US GDP. For example, today the government released the second estimate of US GDP increase at 1.6% for Q2 from previous quarter. And the Dow closed at 10150.65. And keep in mind there are around 90 days between two data points.

The correlation is strong during 2008～2009 period. Right now US economy starts to show sign of slowing down economy. It will be interesting to see how the equity market perform in the following quarters.