Commodities & Metals
Infrastructure Build-Out and Energy Recovery Huge for 5 Top Steel Stocks
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Despite the recent volatility in the markets, and the failure of the Trump administration to push through a repeal and replace of Obamacare, things seem to be looking up for the economy. Fourth-quarter gross domestic product came in above estimates, and despite his rookie mistakes, the president is pursuing a growth path for the economy. This bodes well for the oil and gas industry, an area he wants the United States to be self-sufficient in. Toss in the potential for a $1 trillion infrastructure build, and one sector could be sitting pretty.
In a new research report, Jefferies analysts make the case that the 100% growth in rig counts since the May 2016 low and the prospect for future growth are huge for the steel industry. With hot rolled coil and tubular demand expected to continue to grow, the top companies in the industry could see exponential demand. Five stocks are rated Buy at Jefferies, and all make good sense for long-term growth accounts.
AK Steel
This company has sold off recently and offers investors a solid entry point at current levels. AK Steel Holding Corp. (NYSE: AKS) produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled and hot-rolled carbon steel products, as well as specialty stainless and electrical steels in sheet and strip forms.
The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial and construction markets; it buys and sells steel and steel products and other materials; and it produces metallurgical coal from reserves in Pennsylvania.
The Jefferies price target for the stock is $11.50. The Wall Street consensus price objective is lower at $9.69. The shares closed on Thursday at $7.23 apiece.
ArcelorMittal
This company also has been hit hard recently and offers a good entry point. ArcelorMittal S.A. (NYSE: MT) is the self-described world’s leading steel and mining company, with a presence in 60 countries and an industrial footprint in 19 countries. Guided by a philosophy to produce safe, sustainable steel, the company is the leading supplier of quality steel in the major global steel markets, including automotive, construction, household appliances and packaging, with world-class research and development and outstanding distribution networks.
The company is also one of the world’s five largest producers of iron ore and metallurgical coal and the mining business is an essential part of the corporate growth strategy. With a geographically diversified portfolio of iron ore and coal assets, ArcelorMittal is strategically positioned to serve its network of steel plants and the external global market.
The Jefferies target price is $10.50. The consensus target is $10.47, and shares closed on Thursday at $8.40.
Nucor
This top steel company could do very well if the economy sees a solid pickup this year and the infrastructure push is in place. Nucor Corp. (NYSE: NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the United States and Canada. The company also is North America’s largest recycler.
Nucor products produced include: carbon and alloy steel, in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh.
While the residential construction market could slow down some in 2017 after years of a very torrid pace, top Wall Street analysts remain positive on nonresidential commercial construction. Nucor always has kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially of a huge infrastructure build-out becomes a reality.
Nucor investors receive a 2.51% dividend. Jefferies has a $77 price target, and the consensus target is $68.07. The stock closed Thursday at $60.10.
Steel Dynamics
This is another stock that Wall Street analysts are very positive on, especially if the border tax is put in place. Steel Dynamics Inc. (NASDAQ: STLD) operates six steel mini-mills in Indiana, Virginia, Mississippi and West Virginia. Production capacity has been nearly 10 million tons, of a total 110 million U.S. capacity.
The company makes flat rolled products, special/merchant bars and structural steel products. Steel Dynamics can process about 7 million tons of ferrous scrap and has a downstream operation that processes finished steel.
Shareholders receive a 1.65% dividend. The $45 Jefferies price target compares with the consensus target of $42.46. The stock closed Thursday at $34.55.
U.S. Steel
This is the granddaddy of the domestic steel producers and another stock rated Buy at Deutsche Bank. United States Steel Corp. (NYSE: X) is an integrated producer of flat carbon steel and pipe with a total 22 million tons of capacity in North America and Slovakia.
U.S. Steel’s system includes 11 blast furnaces in the United States and three blast furnaces in Slovakia. The company is the largest North American producer of seamless and welded tubular products.
It posted a solid fourth-quarter earnings beat, and analysts across Wall Street have turned decidedly more positive on the company and the prospects for this year and going forward.
Shareholders receive just a 0.6% dividend. The Jefferies price objective is $50. The consensus target is $38.08. Shares closed Thursday at $33.87.
Steel prices are expected to remain solid in 2017 and beyond, and the potential for some trade barriers to foreign steel could also prop up things. The huge energy and infrastructure growth may not be priced in now, but it will be soon enough.
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