The Steel Empire Built From Scraps

Editor's note: The next global build-out depends on one old-fashioned material: steel. Governments are pouring money into infrastructure, power grids, and defense projects. At the same time, Europe recently rolled out industry-friendly guidelines. And according to John Evelius of our corporate affiliate Chaikin Analytics, one of the world's biggest steelmakers is already benefiting...

Fifty years ago, Lakshmi Mittal built an empire on broken steel mills...

He knew the old, fragmented, and tired steel industry was just waiting for someone to revive it. So he set out hunting for mines no one else would touch.

He found mines operating at a loss and government-owned plants in remote, ignored areas of the world. Mittal bought them dirt-cheap, fixed them up, and brought back profits.

By 2006, Mittal had built a revolutionary steel empire. It was the first truly global steel company, spanning more than 15 countries. This made his company the largest steelmaker on Earth.

But size wasn't enough. Mittal wanted the one prize insiders swore he'd never touch...

The crown jewel of Europe's steel business – Arcelor.

Arcelor prided itself on its heritage. It came from the best steelmakers of France, Spain, and Luxembourg. And its executives saw themselves as guardians of Europe's industrial legacy.

To them, Mittal was an outsider and a disruptor.

So, when Mittal launched a $22.5 billion bid for the company, Arcelor didn't just say no.

It went to war.

The French government invoked "economic patriotism" to shield its national treasure. And Arcelor's CEO mocked Mittal's business practices with racist insults.

Mittal didn't flinch. He raised his offer multiple times. And he soothed European nerves by promising to protect jobs and labor rights.

It took five brutal months of poison pills and backroom deals... but Arcelor's board finally surrendered in June 2006. The outsider won. And his prize was producing 10% of the world's steel.

Today, Mittal's company is building toward one of its strongest moments in years. And not enough people are paying attention...

The Giant Behind a Building Boom

The combined company has become ArcelorMittal (MT) today. And two decades after that takeover fight, it still ranks among the largest steelmakers on Earth.

The company has had a rough few years. Once interest rates jumped, revenue declined as building slowed.

But the pace is picking back up...

Right now, governments around the world are opening their wallets for infrastructure, power grids, and defense build-outs.

Of course, each of these projects starts with steel...

ArcelorMittal's steel appears in everything from skyscrapers and bridges to pipelines, cars, and wind turbines.

The opportunity is clear in ArcelorMittal's most recent earnings...

Sales came in at $16.8 billion in the company's second quarter, up 5% year over year. That may not sound like much, but a deeper dive shows us the real story...

If you couldn't guess – it's in Europe.

For years, the company's European mills posed its biggest headaches. That trend finally changed this quarter...

Operating income from Europe rose sharply, jumping 72% from the first quarter to $410 million.

This gain is thanks to a new set of tariff-quota guidelines recently rolled out by the European Union to reduce the flood of cheap imports. The goal is to hand pricing power back to the continent's own producers.

That's a massive tailwind for the largest steelmaker in Europe. Management expects the momentum to continue.

And the Power Gauge – a system we use at Chaikin Analytics to analyze the markets – agrees...

We can see the company's strength "under the hood" in the image below. Right now, ArcelorMittal gets a "bullish" overall rating... plus a "bullish" or better rating in three of our four categories...

The Power Gauge flags earnings as the only soft spot for the company. But the steel industry is often cyclical – meaning the downturn wasn't ArcelorMittal's fault.

Wall Street's biggest investors see this as well...

The Chaikin Money Flow is now firmly in the green, a sign that big institutions are scooping up shares.

It's not hard to see the tailwinds for the company: rising sales, firmer prices, and a European market roaring back to life.

So keep an eye on ArcelorMittal. The Power Gauge sees more upside ahead.

Good investing,

John Evelius

Editor's note: Chaikin Analytics founder Marc Chaikin says today's market is unlike anything he has seen in his 60 years on Wall Street. That may be bad news for traditional buy-and-hold investors... but he says it could also create a rare opportunity. That's why Marc developed a new way to use his Power Gauge system to target fast-moving opportunities and generate payouts in days.