Is There Too Much Optimism Surrounding AK Steel?

With shares of AK Steel Holding Corporation (NYSE:AKS) trading at around $4.90, is AKS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

DebtMany people are suddenly turning bullish on AK Steel. There are many reasons for this, which include the fiscal cliff deal, the expectation of rising U.S. auto sales, an expected increase in GDP, and the anticipation of a continued real estate turnaround. The key words here are “expectation” and “anticipation.” These two words have led to many investor woes over the years. While it’s possible that everything goes according to plan, what if it doesn’t? If U.S. auto sales disappoint, GDP decreases, and the real estate turnaround comes to a halt, how is AK Steel going to meet expectations in 2013?

Investors love to get excited about a turnaround story because they want to say they spotted it and got in early. And, of course, because they want to make a ton of money. However, more times than not, the turnaround fails. In addition to the potential threats already provided, what if the European Debt Crisis rears its ugly head once again? What if the debt ceiling debates have the same effect on the markets that they did in the summer of 2011? What if China fails to rebound? You might say that these factors would impact any company/stock, but the difference is that AK Steel suddenly has high expectations.

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On the bright side, several billionaires have taken positions in the company. These individuals are billionaires for a reason, which is superb decision making. On the other hand, they’re not always correct, and it’s not often a great idea to invest big when the market is near five-year highs. We all know how that usually plays out.  

Let’s take a look at some important numbers for AK Steel so we can get a better read on the situation.