Russel Metals Inc. in a gentle downtrend

Dec 17th, 2012 – Comment

To your question I would urge caution before buying given the resistance at $27.50 and the gentle downtrend in place.


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Hi Lou,

Do you have any insight into where this stock might be headed. Buy side or sell?
Sincerely,

GT

 

Hey GT,

Thanks for the assignment. This will be the first time that I examine the charts for Russel Metals Inc. (RUS TSX). The company operates in the metals distribution and processing sector. Revenue in 2011  was $2.7 billion which placed the company sixth when compared to its competitors. Canadian operations drive 66% of the business with the rest coming out of the United States. Revenue by category has metal services at 56%, energy tubular contributing 31%, and 13% coming from steel distribution. The dividend yields 5.093% which makes RUS worth considering.

A thorough investigation of the case for RUS will help inform us as to the trend, support, and resistance that will determine the answer to your questions.

 

The three-year chart depicts a stock trading in an up channel that started in early 2012. The concern that I see at this point is the resistance that formed in the fall of 2012 at $27.50. In the last two reported quarters the company has failed to meet street expectations which will make the reporting of Q4 in February of 2013 very interesting. Also worth noting is that the advance has been assisted by three increases in the quarterly dividend since February of 2011 from $0.25 to its current $0.35. The question is will the company be able to get the dividend back to the $0.45 it paid in 2008?

The MACD and the RSI are also signalling a weakening of the uptrend.

 

 

 

 

 

The six-month chart provides a tight shot of the resistance along $27.50 and the gentle downtrend that has formed since November. Keep in mind that the all time high for the stock is $32.20 reached in April of 2007. To my view it will take some heavy lifting to scale those heights. RUS recently acquired Apex Distribution Inc. which if followed up by other deals could help drive the stock higher.

To your question I would urge caution before buying given the resistance at $27.50 and the gentle downtrend in place. As to a sell I always advise that capturing profits when available is a good strategy to follow.

 

Make it a profitable day and happy capitalism!

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