5 Solid Steel Stocks to Snap Up As the Bull Run Continues
Strong demand and skyrocketing steel prices have put the steel industry on a solid footing. MT, NUE, X, ZEUS and TX are good options for investment ri...
The steel industry is currently enjoying a boom after being hobbled by the fallout from the coronavirus pandemic last year, courtesy of a strong revival in demand and record-high steel prices.
The pandemic-led demand destruction put a dent on the steel industry for much of the first half of last year. However, the industry has staged an impressive comeback thanks to strong pent-up demand and zooming steel prices. Steel demand is on an upswing with the resumption of operations across major sectors such as automotive, construction and machinery following easing of lockdowns and restrictions across the word. An upturn in industrial activities is driving demand for steel. Demand remains robust across construction and manufacturing sectors.
Steel makers benefited from higher demand from the automotive market in the June quarter notwithstanding the semiconductor shortage which continues to affect automotive production globally. Some of them racked up record earnings in the second quarter on the back of strong demand and a surge in steel prices. Major steel companies have provided an upbeat profit outlook for the third quarter of 2021 with expectations that the prevailing strong market environment will continue through the remainder of 2021.
Steel prices continue to race ahead, buoyed by an upturn in demand across key markets, tight supply conditions and low steel inventory throughout the supply chain. U.S. steel prices have witnessed an unprecedented surge this year on the back of strong underlying supply and demand fundamentals.
The benchmark hot-rolled coil (“HRC”) prices are hitting fresh highs, having shot up more than four-fold from the lows witnessed in August 2020 and also nearly doubled since the start of 2021. HRC prices have broken above the $1,900 per short ton level as the upward momentum continues. According to Fastmarkets MB, U.S. HRC index was $1,946.6 per short ton on Sep 3.
A prime reason behind the spurt in U.S. steel prices is the demand-supply imbalance. U.S. steel stocks are also on fire this year on skyrocketing domestic steel prices. The Senate approval of the roughly $1 trillion bipartisan infrastructure plan designed to improve the nation's roads, bridges, pipes, ports and Internet connections has also triggered a rally in steel stocks.
There is room for further gains in HRC prices as demand continues to outpace supply. The price rally is expected to continue over the coming months on continued strong demand and reduced steel availability stemming from a raft of planned mill outages and scheduled maintenance. Higher prices are likely to act as a catalyst and drive margins of steel companies through the balance of 2021.
Favorable Zacks Industry Rank
The Zacks Steel Producers industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries. The favorable rank reflects the industry’s strength. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The Zacks Steel Producers industry has outperformed the broader market in a year’s time. While the industry has rallied 130.2%, the S&P 500 has returned 38.2%.
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5 Steel Stocks to Scoop Up
The steel industry is firing on all cylinders driven by soaring steel prices and the demand upsurge across major end-markets. Strong fundamentals make the steel space an attractive area to invest in right now. Here we pick five steel stocks with a Zacks Rank #1 (Strong Buy) that are good options for investment right now.
You can see the complete list of today’s Zacks #1 Rank stocks here.
ArcelorMittal MT: Luxembourg-based ArcelorMittal is witnessing a rebound in demand, especially in automotive, following the easing of lockdown measures. The company also remains focused on maintaining a competitive cost advantage and strategically growing through high-return projects in high-growth markets. It is expanding its steel-making capacity and remains focused on shifting to high-added-value products. Its cost-reduction initiatives will also support profitability.
ArcelorMittal has expected earnings growth rate of 1,731.3% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 44.4% upward over the last 60 days. It has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 49.3%.
Nucor Corporation NUE: Charlotte, NC-based Nucor is benefiting from strength in the non-residential construction market and a recovery in the automotive market. The company is also seeing strength in heavy and agriculture equipment and improve conditions in energy markets. Higher demand is supporting its shipments. Nucor should also gain from considerable market opportunities from its strategic investments in its most-significant growth projects. It remains committed to boost production capacity, which should drive profitable growth and strengthen its position as a low-cost producer.
Nucor has expected earnings growth rate of 478.7% for the current year. The consensus estimate for earnings for the current year has been revised 23.7% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 8.1%.
United States Steel Corporation X: Pennsylvania-based U.S. Steel is gaining from strong demand across end markets and higher domestic steel prices. It is witnessing strong consumer-driven demand and pent-up infrastructure demand. The investment in Big River Steel is also expected to be accretive to U.S. Steel’s earnings and will generate significant synergies. Cost-saving initiatives and efforts to improve operation efficiency should also drive its results.
The company has expected earnings growth rate of 354.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 11.8% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 25.1%.
Olympic Steel, Inc. ZEUS: Ohio-based Olympic Steel is benefiting from its strong liquidity position, actions to lower operating expenses, and strength in its pipe and tube and specialty metals businesses. Improving industrial market conditions and a rebound in demand are expected to support its volumes. The company’s strong balance sheet also allows it to invest in higher-return growth opportunities.
The company has an expected earnings growth rate of 2,362.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 72.2% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 40.9%.
Ternium S.A. TX: The Luxembourg-based company is expected to benefit from strong demand for steel products and higher realized steel prices. Its shipments in Mexico are likely to be aided by strong demand from industrial customers. Healthy demand for construction materials is also expected to support shipments in Argentina. Ternium is also benefiting from the cost competitiveness of its facilities. The company is also taking actions to boost liquidity and strengthen its financial position in the wake of the pandemic.
Ternium has expected earnings growth rate of 460.6% for the current year. The consensus estimate for the current year also has been revised 35.3% upward over the last 60 days. It also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 77.1%.
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ArcelorMittal (MT): Free Stock Analysis Report
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Olympic Steel, Inc. (ZEUS): Free Stock Analysis Report
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