Thinking About Investing in Steel? Reliance Steel & Aluminum May Be a Good Choice

I will give a brief background and history of the company. But more importantly I will argue why this company's stock should be purchased.
Reliance Steel & Aluminum Co. (RS), headquartered in Los Angeles, California is in the metal fabrication industry. Operations span 37 states, and Belgium, Canada, China and South Korea. The product line includes galvanized, hot-rolled and cold-finished steel, stainless steel, aluminum, brass, copper, titanium and alloy steel.

Looking at the financial statements of the company, Reliance Steel is showing strong revenue growth and net income growth. This is what investors look for when investing in companies. As earnings grow so will the stock price. I pulled some vital statistics from Yahoo Finance. The operating margin is a healthy 10.7% Is that good? Let's look at Worthington Industries. They have an operating margin of 4.8% Ryerson has an operating margin of 2.8% U.S. Steel has an operating margin of 10.9% The answer is yes. Reliance has a good operating margin. Moving on to revenue growth. Fiscal year 2004 was $2.95 billion. 2005 revenue grew 14% to $3.37 billion. Revenue in 2006 was $5.75 billion, 70% growth over the previous year. The company follows a strategy of making acquisitions to grow revenue and offer a variety of products and services to a diverse customer base.

The stock is trading at a 52 week high right now. I would definitely wait to buy shares on the next fibonacci correction or pull backs on below average volume.Late March of 2007 the stock began to rally from 47 to 63 as institutions started buying up shares. Historically, stocks that hit 52 week highs tend to keep going higher. It is important to step back and look at the steel industry to see what other companies stock prices are doing.

So there is my recommendation. Buy RS. I do not like to spend too much time with P/E ratios or dividend yields. I focus on what drives the prices, which is institutional buying. I learned this from studying Bill O'Neil. He provides adequate information on how he invests in stocks using fundamental analysis to screen for stocks to put on his watch list. Then he uses technical analysis to determine his entry points and when it is a good time to take profits or cut losses before they get too big (O'Neil's rule is sell at a 7-8% loss).

Please invest responsibly. Do not invest money you cannot afford to lose. Investing should be conducted with a plan which is executed with patience and discipline. Investors who follow their plans and remain unemotional tend to outperform those investors who react based on feel. There is no 100% guarantee in the stock market!