Gerdau S.A. (NYSE:GGB) is engaged in the production of crude steel and related long rolled products, drawn products and long specialty products. The company makes steel based on the mini-mill concept, whereby steel is produced in electric arc furnaces from scrap and pig iron acquired mainly in the region where each mill operates. Gerdau also operates plants that produce steel from iron ore in blast furnaces and through the direct reduction process. The company also manufactures steel products for use in civil constructions, manufacturing and agribusiness, as well as specialty steel products. The markets where Gerdau operates are located in Brazil, the United States, Canada and Chile, and, to a lesser extent, Argentina and Uruguay.
On Tuesday, Gerdau announced that its fourth-quarter profit rose almost 63% amid higher international steel prices and strong foreign demand. Sales climbed 3.4% to 12.6 million tons in 2004 and the company's senior VP said he expected Brazilian sales volumes to rise another 6% to 7% in 2005. More importantly, the company is making plans to start supplying its mills with raw materals from one of the three Brazilian iron-ore deposits it owns outright.
Briefing.com profiled this stock during Friday's session, noting that the company's share value was near a 52-week high and still relatively underpriced among its peers. Our analysis suggests a bullish outlook for the issue in the short-term and in light of the recent surge in iron ore prices, the underlying sector appears poised for additional gains as well. Traders who agree with this assessment should consider the following cash-secured put position in GGB. It will not be listed in portfolio summary.
Sell Put MAR 17.50 GGB-OW
Current Bid = $0.35 Open Interest = 44
Potential Profit (5 contracts) = $175
Initial Margin (5 contracts) = $3,225
Return on Investment (max) = 8.3%
Cost Basis in Stock = $17.15
Days to Expiration = 20