Why Ternium Looks Like a Solid Selection

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Ternium climbed 3% today after Morgan Stanley upgraded the steel products company from equal-weight to overweight.

So what: Along with the upgrade, analyst Carlos de Alba significantly boosted his price target on the stock to $31.60 (from $25.20), representing nearly 30% worth of upside to yesterday's close. While value investors might be turned off by the stock's rather volatile run-up over the past year, de Alba thinks Ternium has plenty of juicy catalysts ahead to fuel the rally even further.

Now what: Morgan Stanley sees solid operational improvement over the next few years. "Ternium has two new facilities in Mexico that are to ramp up in the next 9 months, providing mileposts for 1) a better operational risk profile, with an increased Mexican participation; 2) EBITDA growth of 13% in 2013-15; and 3) industry-high FCF yield," de Alba wrote in a note to clients. Given that the stock still trades at a paltry price-to-cash flow of four, I'd have to agree with de Alba's call that investors have room to benefit from those prospects. 

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The article Why Ternium Looks Like a Solid Selection originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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