The steel industry generated solid sales last year, with skyrocketing steel prices fueled by supply cuts and shipping bottlenecks amid rising demand in a recovering economy. The benchmark price for hot-rolled steel quadrupled within a year to peak at $1,955/ton in September 2021. President Biden’s Infrastructure Bill, which was signed into law in November 2021, allocates approximately $850 million to steel-intensive projects. This is expected to create as much as 40 - 45 million tons of new steel demand over the life of those projects, thereby boosting the industry significantly.
Although steel prices might be vulnerable to a correction this year, prices are expected to remain reasonably high compared to the historical average. “Prices are coming down, and they are coming down sharply, but we still believe the annual average will be 75% higher than that 10-year average,” predicted John Anton, director of pricing and purchasing at IHS Markit. Worldsteel Association forecasts steel demand to grow by 2.2% to 1,896.4 Mt, driven by solid manufacturing activity.
Given this backdrop, we think it could be wise to scoop up fundamentally sound steel stocks, Arcelor Mittal NY Registry Shares NEW (MT), Steel Dynamics, Incorporation (STLD), Reliance Steel & Aluminum Corporation (DE) (RS), and United States Steel Corporation (X). These stocks are trading below their 52-week highs but have significant upside potential.
Arcelor Mittal NY Registry Shares NEW (MT)
Luxembourg-based MT is a leading steel manufacturer and mining company that offers flat, long, and tubular products, including slabs, hot-rolled coil, cold-rolled coil, and coated steel products. Its principal mining products include iron ore lumps, fines, concentrate pellets, sinter feed, coking and thermal coal, and pulverized coal injections.
MT has completed its fifth share buyback program. The company repurchased 34,080,049 shares at an approximate average price per share of €25.99 ($29.34) by market close on Dec. 28, 2021. Thus, increasing existing shareholder returns.
On December 9, MT announced its expanded partnership with carbon capture and re-use specialist LanzaTech through a $30 million investment, demonstrating its focus on emission control initiatives. LanzaTech’s gas fermentation technology can reduce CO2 emissions at MT’s plant in Ghent, Belgium, by 125,000 tonnes a year.
MT’s sales increased 52.5% year-over-year to $20.23 billion in the third quarter, ended September 30. Its net income attributable to equity holders of the parent improved 1,870.5% year-over-year to $4.62 billion, while its operating income grew 644.4% from the year-ago value to $5.35 billion. And its EPS increased 2,081% from its year-ago value to $4.16.
The $20.33 billion consensus revenue estimate for its fiscal fourth-quarter, ending December 31, 2021, indicates an increase of 43.4% year-over-year. Analysts expect MT’s EPS to come in at $3.48 for the same quarter, reflecting a rise of 1,770.9% year-over-year. Also, the company topped EPS estimates in each of the trailing four quarters.
The stock has declined 4.8% over the past month to close its last trading session at $30.55. The stock is currently trading 19.3% below its 52-week high of $37.87.
MT’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each other weighted to an optimal degree.
MT is also rated an A in Value and a B in Growth, Momentum, Sentiment, and Quality. Within the A-rated Steel industry, it is ranked #3 of 34 stocks. To see additional MT ratings for Stability, click here.
Note that MT is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Steel Dynamics, Incorporation (STLD)
STLD in Fort Wayne, Ind., is a steel producer and metal recycler in the United States. It operates through three segments: Steel Operations; Metals Recycling Operations; and Steel Fabrication Operations.
Last October 2021, STLD announced its agreement to acquire a 45% equity interest in New Process Steel, a leading metals solutions and distribution supply-chain management company that focuses on growing its value-added manufacturing applications. STLD expects its minority equity interest to provide exposure to value-added manufacturing opportunities while continuing to meet its long-standing flat roll steel customer needs.
STLD’s net sales increased 118.3% year-over-year to $5.09 billion in the third quarter, ended September 30. Its operating income grew 748.2% from its year-ago value to $1.32 billion, while its net income improved 859.1% year-over-year to $1 billion. Its EPS increased 931.9% from its year-ago value to $4.85.
Analysts expect the company’s revenue to increase 103.3% year-over-year to $5.29 billion in its fiscal fourth quarter, ended December 31, 2021. The $5.71 consensus EPS estimate indicates a 488.5% rise year-over-year. Also, STLD beat the Street’s EPS estimates in each of the trailing four quarters.
The stock has declined 12.2% in price over the past month to close its last trading session at $54.12. The stock is currently trading 27.2% below its 52-week high of $74.37.
It is no surprise STLD has an overall B rating, which translates to Buy in our proprietary rating system. STLD is rated A in Growth and B in Value, Momentum & Quality. It is ranked #18 among the 34 stocks in the Steel industry.
In addition to the POWR Ratings grades I have just highlighted, one can see the STLD ratings for Stability and Sentiment here.
Reliance Steel & Aluminum Corporation (DE) (RS)
RS is a Los Angeles-based metals service center company that provides metal processing services and inventory management services to general manufacturing, non-residential construction, transportation, aerospace and defense, energy, electronics and semiconductor fabrication, and heavy industries.
Last month, RS acquired Rotax Metals, Inc., a metals service center specializing in copper, bronze, and brass alloys, which will operate as a subsidiary of Yarde Metals, Inc., a wholly-owned subsidiary of RS. The acquisition is expected to expand RS’ portfolio of specialty bronze, brass, and copper product offerings. The company also announced the acquisition of Admiral Metals Servicecenter Company, Inc., a leading distributor of non-ferrous metal products in the Northeastern United States, and Nu-Tech Precision Metals Inc., a custom manufacturer of specialty extruded metals, fabricated parts, and welded components. These prominent business additions should boost Rs’ operations and help diversify its product offerings in specialty metals.
RS’ net sales increased 84.5% year-over-year to $3.85 billion in the third quarter, ended September 30. Its operating income grew 241.2% year-over-year to $547.60 million, while its non-GAAP net income attributable to RS improved 305.4% year-over-year to $395.70 million. Its non-GAAP EPS increased 228.9% from its year-ago value to $6.15.
The $3.84 billion consensus revenue estimate for the fiscal fourth-quarter, ending December 31, 2021, indicates an increase of 79.7% year-over-year. RS’ EPS is expected to be $5.15, indicating a 156.4% rise year-over-year. Also, RS has surpassed the consensus EPS estimates in each of the trailing four quarters.
RS shares have slumped 4.5% in price over the past month to close its last trading session at $151.52. The stock is currently trading 16.4% below its 52-week high of $181.21.
RS’ POWR Ratings reflect its solid fundamentals. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. RS is rated B in Growth, Momentum, and Quality. It is ranked #10 in the Steel industry. Click here to see the RS’ ratings for Value, Stability & Sentiment.
United States Steel Corporation (X)
X’s is a leading producer and seller of flat-rolled and tubular steel products primarily in North America and Europe. The Pittsburgh, Pa.-based concern operates through three segments: North American Flat-Rolled (Flat-Rolled); U. S. Steel Europe (USSE); and Tubular Products (Tubular).
X recently announced that it would set up its next-generation, highly sustainable and technologically advanced steel mill in Osceola, Arkansas, close to U.S. Steel’s cutting-edge Big River Steel plant. Upon completion, this facility, along with Big River Steel, is expected to form a 6.3-million-ton mega mill capable of providing advanced and sustainable steel in North America. This new facility should propel X’s long-term growth.
Last December, X, along with Norfolk Southern Corporation (NSC) and The Greenbrier Companies, Inc. (GBX), announced the introduction of a more sustainable, high-strength, but lighter steel gondola railcar. “This remarkable collaboration with our partners at Norfolk Southern and Greenbrier is helping realize the full potential of U. S. Steel’s continued product innovations as sustainable solutions for the steel and transportation industries,” said U. S. Steel President and CEO, David B. Burritt.
X’s net sales increased 154.9% year-over-year to $5.96 billion in the third quarter, ended September 30. Its adjusted net earnings improved 675.7% year-over-year to $1.54 billion, while its adjusted EBITDA grew 4,236.7% from its year-ago value to $2.03 billion. Its adjusted EPS increased 543% from the prior-year quarter to $5.36.
The Street expects the company’s revenue to increase 57.7% year-over-year to $5.78 billion in the current quarter, ending March 2022. The $4.15 consensus EPS estimate indicates a 283.9% rise year-over-year in the current quarter.
Over the past month, the stock has declined 18% in price to close its last trading session at $18.98. The stock is currently trading 37.9% below its 52-week high of $30.57.
X has an overall B rating, which translates to Buy in our proprietary rating system. The stock is rated an A in Growth and Value and a B in Momentum and Quality. It is ranked #20 in the Steel industry. Get X’s Stability and Sentiment ratings here.
MT shares were trading at $31.10 per share on Wednesday morning, up $0.55 (+1.80%). Year-to-date, MT has declined -2.29%, versus a -6.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.4 Quality Steel Stocks to Buy on the Dip appeared first on StockNews.com