Gerdau S A ADR (GGB) Monday, June 23, 2008 - CANSLIM.net |
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C A N S L I M | StockTalk | News | Chart | SEC | Zacks Reports | CANSLIM.net Company Profile: Gerdau S.A., through its subsidiaries, produces and sells steel and related long rolled products, drawn products, and long specialty products. The company's crude steel products include billets that are used to manufacture wire rods, rebars, and merchant bars; blooms, which are used to manufacture springs, forged parts, heavy structural shapes, and seamless tubes; and slabs that are used in the steel industry for the rolling of various flat rolled products, as well as to produce hot and cold rolled coils, heavy slabs, and profiling. Its long rolled products include rebars, merchant bars, and profiles, which are used in civil construction and industrial manufacturing sectors; and drawn products comprise barbed and barbless fence wire, galvanized wire, fences, concrete reinforcing wire mesh, nails, and clamps used in manufacturing, civil construction, and agricultural sectors. The company also offers specialty and stainless steel products used in tools and machinery, chains, fasteners, railroad spikes, and special coil steel, as well as special sections, such as grader blades, smelter bars, light rails, super light I-beams, and elevator guide rails. In addition, it offers flat steel products; resells flat steel products manufactured by other Brazilian steel producers; and retails its products through its network of stores, fabricated reinforcing steel facilities, and flat steel service centers. Gerdau, through its interest in Dona Francisca Energetica S.A., operates hydroelectric power plant with a nominal capacity of 125 megawatts located in the state of Rio Grande do Sul, Brazil. The company offers its products in Brazil, Canada, Chile, the United States, Uruguay, Colombia, Argentina, Spain, Peru, Mexico, and Venezuela. Gerdau has a strategic alliance with Industrias Nacionales, C. por A. The company was founded in 1901 and is headquartered in Porto Alegre, Brazil. Gerdau S.A. is a subsidiary of Metalurgica Gerdau S.A. GGB's sales revenues have increased at a strong and steady rate in recent quarterly comparisons over prior years, but in only one quarter of the past 6 quarters did earnings per share surpass the +25% guideline needed to satisfy the C criteria. The stock earns a healthy 82 Earnings Per Share Rating (EPS). Technically, the stock has performed admirably which has helped this issue earn a strong Relative Strength (RS) ranking of 96, and its Relative Strength line has spiked to new highs in recent weeks which has positive implications. This high-ranked leader hails from the Steel-Producers group which is currently ranked 3rd out of 197 Industry Groups tracked for relative price performance over the past 6 months, placing it in the much preferred top quartile helping to satisfy the L criteria. The number of top-rated funds with an ownership interest has increased from 30 funds in June ‘07 to 33 funds as of March '08, a sign of increasing institutional interest (the I criteria). What to Look For and What to Look Out For: Look for this issue to find support near its 50 DMA line while consolidating from recently hit all-time highs. It is extended from a proper base, so disciplined investors would avoid chasing it and wait for a proper new buy signal. Ideally, this stock would pullback over the next few days on light volume which would help set the stage for another strong rally with heavy volume to confirm strong institutional demand. The stock is currently working on flat base ($23-26) about 5 weeks long. Ideally, for the bulls, market conditions would also improve and boost the major averages enough to repair their recent 50 DMA and 200 DMA line violations while this stock finds support. Patience may offer savvy investors another chance to accumulate this high-ranked leader at an appropriate buy point. However, a technical sell signal will be triggered if GGB violates its 50 DMA line on heavy volume. Such a failure would have negative ramifications and would suggest that investors reduce their open positions (if applicable). Also, it is important to avoid putting any new money to work until the major averages produce a solid follow-through day. Once that occurs, if this stock is trading within the proper parameters (above its 50 DMA line and below its recent chart highs $26.21), it could be considered as a proper buy candidate. Until then, the most ideal high-ranked stocks should be placed on a watch list and consistently monitored. It is very important to remain disciplined and avoid "chasing" stocks above their maximum buy point. Remember that after a stock trades above its maximum buy price, the odds of a normal pullback shaking you out increases sharply. Technical Analysis: This stock broke out of a long flat base chart pattern in late-February, then pulled back and found support above its 50 DMA line before surging to new highs again. Gains in late-April and early-May were backed by above average volume while it rose above the upper limit of a multi-month trading channel. Its more parabolic rise is indicative of heavier institutional buying interest as its recent gains led to a very significant +72% advance from its 3/31/08 price. However, GGB has spent only a short time building a flat base between $23-26 with a new pivot point of $26.31, and the very high volume behind its loss on 6/11/08 raised concerns that it is encountering distributional pressure. |
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