AK Steel on Firm Footing

We expect AK Steel Holding's (AKS) cost-reduction efforts and renegotiated higher-priced contracts to prevent excessive margin deterioration in light of higher commodity costs. The company has greater product diversification compared to its peers and is focusing on markets and products that have the greatest long-term potential to succeed. We believe the company will gain from new projects, higher-selling prices, and increased shipment. Hence, we reiterate the Buy rating and raise our six-month target price to $60.00.

In the last three years, AK Steel has lowered its headcount by 26%. As a cost-containment strategy, the company has set up a recycling facility to transform waste materials into feedstock for the blast furnace. Moreover, the company also announced the construction of a new electric arc furnace that will significantly reduce stainless and electrical steel production costs.

In the fourth phase of the electrical steel-making capacity expansion, the management has authorized an investment of approximately $130 million for its plant in Butler, Pennsylvania. This is expected to generate annual savings of $60 million on completion in 2009. With this expansion, AKS's electrical and carbon steel products manufacturing capacity will rise to 1.45 million tons annually. AKS is further expanding the electrical steel capacity by investing $21 million. The expansion is expected to be completed by 2009.

In response to higher raw material cost, the company is hiking prices of its products. It will increase spot market prices for its carbon steel products by $50 per ton effective September 1.

Halliburton on a Growth Curve

Halliburton Company (HAL) posted solid second-quarter 2008 results, reflecting contribution from all product service lines driven by increased international activity and strengthening demand in the U.S. International revenue, which was up 26% year-over-year, exceeded the 20% growth target.

The company expects robust international growth to continue throughout the second half and into 2009, driven by introduction of new technology, reliability of execution and solid project visibility. The outlook for the domestic market has significantly improved, with the management expecting improved pricing leverage going forward. Our Buy recommendation remains unchanged as we continue to view Halliburton as a core oilfield service holding.

Halliburton has a strong international oilfield presence, with the oil-rich Eastern Hemisphere becoming its fastest growing segment. The recent decision to open its headquarters in Dubai highlights the significance of the region to the company.