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Bond #2: Steel Dynamics (STLD)

Steel Dynamics is one of the most profitable steel companies operating in the U.S. While most analysts forecast a difficult year for the steel industry, recent activity in this sector has shown signs of having reached a low point.

Steel Dynamics stock is trading at a level double its 52-week low. The company is in a strong cash position, with a current ratio of 1.54 compared to an industry average of 1.17 and interest coverage of 18.33 versus the industry average of 0.09.

Of even greater significance is the company’s 5-year average earnings information. Steel Dynamics has had an average return on assets of 13.44 while the industry has had a ROA of 6.82. An average operating margin of 18.24 compared with the industry’s margin of 12.75 is further testimonial to the quality of the company’s management.

Steel Dynamics bonds are rated BB+ by S&P and Ba2 by Moody’s. Recent trades of their 7.875% bonds maturing in 2012 have been at a price of 80, producing a yield to maturity of 14.33%. At this level, the bond is a bargain offering high current returns and the opportunity for capital gains as the economy improves.

Next: Bond #3 – Freeport McMoRan