Monday, May 9, 2011

Mechel OAO (NYSE: MTL) Q3 2011 Price Target

Recent price: 25.12$
P/E Ratio: 16.70
3 Months Target Price: 32$

Company Description
Data provided by Reuters tells us that Mechel OAO is an integrated mining, steel, ferroalloys and power company. The Company operates in four segments: mining, steel, ferroalloys and power. Its mining segment produces coking and steam coal, as well as iron ore and iron ore concentrate. The mining segment consists of coal and iron ore mines in Russia and the United States. Its steel segment produces and sells semi-finished steel products, carbon and specialty long products, carbon and stainless flat products and value-added downstream metal products, including wire products, stampings and forgings. Its ferroalloys segment produces and sells low-ferrous ferronickel, ferrochrome and ferrosilicon. Its power segment produces and sells electricity to internal and external customers.

Confidence Margins
Strong resistance $34.63 (+33%)
Light resistance $32.20 (+23%)
Light support $25.26 (-3%)
Strong support $22.92 (-12%)

Shares of Mechel OAO have been trading lower over the past few weeks. It also seems that a series of acquisitions and the fact that some shareholders are selling their preferred shares is have a negative impact on the stock. At current price levels, a long position makes sense and will be very rewarding for investors by the end of the third quarter of 2011 as commodities and energy prices will remain high.

Entry strategy
For the cautious investor:
Buy the stock for 27$ or less.

For the risk-taking trader:
The October 2011 27$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 260$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 32$, or keep it until 34$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 32$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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