This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.
The big U.S. steelmakers are coming off a disastrous year, as Real Money reported. But a recent spike in metal prices is prompting investors to reconsider the industry.
The bottom line is some American producers are performing far better than others, having established defensive walls against the turbulence of lower prices, cheaper imports, and reduced demand from China and oil-and-gas customers.
Perhaps the most distressed major producers -- and members of Real Money's index of 20 stocks investors should keep on their distressed watch list -- are U.S. Steel (X), TimkenSteel (TMST), and AK Steel (AKS).
And while their depressed share prices tell much of the story, further trouble lurks on their balance sheets as all three have learned that carrying high debtloads combined with burning cash is not a good combination.
Pittsburgh-based U.S. Steel has booked losses in each of the last four quarters, bringing its total net income in 2015 to about $262 million. Meanwhile, the company is lugging around nearly $3.2 billion in debt.
That's not a pretty picture, especially as it seems U.S. Steel has been torching more cash than metal lately, having idled mills to deal with deteriorating market conditions. With $755 million reported, U.S. Steel has about half the cash it had a year ago.
CFO David Burritt contended on last week's earnings call that the company has adequate liquidity, as its revolving credit facility (essentially a corporate credit card) brings U.S. Steel's total liquidity to $2.4 billion.
"We repaid approximately $380 million of debt in 2015," he said on the earnings call. "And although down from the end of 2014, our cash and liquidity remained strong. Maintaining strong cash and liquidity is a competitive advantage for us during a trough in the business cycle, particularly when the timing of a recovery remains uncertain."
Shares of U.S. Steel are down 66% over the past 12 months.
Canton, Ohio-based producer TimkenSteel appears to be in no better shape, as its $200 million in debt is adding fuel to the fire of persistent losses. (TimkenSteel booked net losses of about $69 million in 2015.)
TimkenSteel shares are down 69% over the last 12 months, putting it on number two on the steelmaker list of which investors should be wary.
Third in line is also an Ohio native: West Chester-based manufacturer AK Steel, which as seen 41% of its stock price vanish over the period. Part of the reason is AK Steel's nearly $2.4 billion in debt has put it in a nasty leverage position, as the producer had to book losses of about $86 million for 2015.
But as investors look at recent spikes in metal prices and the corresponding jumps in producers' share prices, they may want to consider the American makers that have been performing best.
Number one is Fort Wayne, Ind.-based Steel Dynamics (STLD), which is up roughly 6% over the past 12 months, putting it in the rarefied category of those actually seeing values rise despite the storm.
"The reality of the excessive, unfairly traded steel imports during the entire year significantly reduced our overall earnings," CFO Theresa Wagler said on last weeks earnings call. "However, despite this, we again achieved record performance that surpassed our industry peers and we generated record levels of annual cash flow."
Commercial Metals (CMC), the Irving, Tex.-based manufacturer, is next on the list by posting a modest gain of just over 1% over the past 12 months, while North Carolina producer Nucor (NUE) clocks in third, with a loss of just 10%.
Both appear to have also managed to weather the challenged market, and could be well poised to gain off what's appearing to look like a rebound in metal prices across the board.
For more on Real Money's 20 distressed companies to watch: