Ternium could benefit if the U.S. puts a tariff on steel coming from Mexico, according to Morgan Stanley. Analyst Carlos De Alba reiterated his overweight rating on the steel producer and said it was still his top pick in the Latin American metals and mining sector. His $51 price target implies shares can gain 13.5% over the next year from Wednesday’s close. “While Mexico is a net exporter of steel to the US, the country is a net importer of flat products from its northern neighbor,” he wrote in a note to clients. “Hence, we believe that TX would be well positioned if the US imposed tariffs on steel produced in Mexico and Mexico retaliated.” The volume of steel imported to the U.S. from Mexico jumped 43% in 2022 compared with 2018 and 92% from 2015. That underscores a shift in the relationship in recent years, as the country had a negative steel trade balance with the U.S. prior to 2018. Language from Mexican and U.S. officials around the need to address the recent surge has prompted concerns from investors that the U.S. may implement a tariff on steel imports from Mexico, De Alba said. If that happened, Ternium would not only be well positioned, but may even benefit, he said. Ternium’s product mix makes the company likely to get a boost from a lower steel trade given its business focus on steel types that aren’t typically exchanged at high volumes between the two countries, De Alba noted. In other words, the bulk of the trade is steel more commonly produced by other companies. Ternium stock has a positively skewed risk-reward ratio, De Alba said. He also said profitability has reached an “inflection point,” which has historically made for a good entry point for investors. TX YTD mountain Ternium’s 2023 The stock is also at an attractive absolute valuation compared to its 10-year average, the analyst added. He pointed to the company’s strong balance sheet, noting Ternium has a solid net cash position while still making investments into ongoing growth. De Alba also said investors should expect an attractive dividend yield. Shares have gained 47% this year. — CNBC’s Michael Bloom contributed to this report
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