Two of these stocks are in the steel sector, ArcelorMittal and Thyssenkrupp as Davy Research’s latest survey of Chinese steel producers indicates that user demand in the region is weakening, inventories are rising, and prices and production expected to fall.
“Thyssenkrupp’s low credit rating is a reminder that this company fails to generate any FCF [free cash flow] from operations which has been negative now for the last five years,” Dixon said. “In its recent first-quarter results, net debt increased to almost 6 billion euros ($7.9 billion) from 3.5 billion euros in September. And given the lack of firm guidance for the full year, it can be assumed that this is yet another year of negative FCF generation.”
On ArcelorMittal, Dixon said he remains cautious following its recent fourth-quarter and full-year results.
“The group’s cautious outlook highlights just how much too-high consensus numbers are. We think that the recent share price rally has priced in a lot of good news and we think there are more potential disappointments to come. With net debt of $22.5 billion and little or no free cashflow, there is little room for disappointments,” he added.
Another stock Dixon suggested selling is Air France-KLM .
“We are happy to remain short Air France-KLM despite the almost 20 percent rally year-to-date,” he told CNBC. “With net debt of 6.5 billion euros at the end of 2011, the company remains the most indebted in the aviation sector and with negative free cashflow forecast again for 2012, this is unlikely to change anytime soon.”
He added: “The recently announced restructuring program is unlikely to be successful in our view, which could result in the company being forced to do a deeply discounted rights issue.”
Additional News: ArcelorMittal Announces Detailed Dividend Payment
Additional Views: Bullish on Emerging Markets...For Now: Analyst
CNBC Data Pages:
Neither Barry Dixon nor his company own any of the stocks mentioned in this blog.