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Olympic Steel Inc. (ZEUS) Occupies Strategic Position in the Steel Business Chain

Cyclical downturns in the Basic Materials Sector threaten returns for potential stock investors. The Miscellaneous Fabricated Products Industry of this sector has much to recommend itself in this regard. It is positioned in such a way as to remain relatively isolated from slackness in demand. It is also ever-ready to adapt quickly to market expansion.

This small capital member of the Miscellaneous Fabricated Products Industry is based in Bedford Heights, OH. It deals in various grades of steel, and can process this sturdy material into plates, sheets, or rolls. This capability makes the stock stable. The company has many degrees of freedom in terms of developing new customers and applications. The company adds value which neither steel mills nor downstream industrial users would care to replicate. It therefore has a vantage point in the steel value chain. The stock is also relatively protected from world trends in steel prices, since it can buy the raw material from a number of independent sources, and earns its margin through fabrication alone.

Distribution strength adds synergy to the competitive strength of being able to do so many things with basic steel of any grade. The company has a network of 15 facilities strung along the industrial heartland of the United States. Costs of transportation and customer bonding are significant benefits for the company from this unique web of processing and distribution hubs.

The Price to Earnings Ratio has been below 18 during the last four quarters against over 23 for the industry during this period. Capital spending over the last five years has grown by more than 50% though Total Debt remains an insignificant fraction of Equity. Interest Coverage on a Trailing Twelve Months basis has exceeded 30. The stock is most appropriate for investors seeking a relatively safe slot in the current market volatility.

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