Despite the doom and gloom about the trade war between the United States and China, discussion of a big-time infrastructure package for the country is making the rounds in Washington, D.C. While the politicians have all fled to their respective states for the summer recess, and the presidential hopefuls for the Democrats to Iowa, you can bet they are listening closely to constituents who want to see the longest economic expansion ever continue.

A new Jefferies research report says that at the firm’s recent Industrials Conference, the analysts met with management teams from the major steel companies and came away feeling very positive on the set-up for the rest of the year.

The report noted this:

We hosted over a dozen companies from the steel industry at last week’s; Industrials conference. Commentary from mgmt. teams continued to highlight solid underlying demand, with improving fundamentals. In addition, one steel producer noted that while US Hot Rolled Coil prices have recovered following several price hikes, US Hot Rolled Coil remains below a normalized value. We continue to see opportunity for US steel prices to recover in the second half of 2019 driven by a confluence of emerging factors including US/EU capacities, the abating of destocking in response to 232 tariffs, a catch-up trade with scrap vs. iron ore, low US steel imports and seasonal demand improvement which we believe could support improved US steel prices in the near-term.

Five top companies are rated Buy at Jefferies and are good additions to growth portfolios looking for ideas now.

ArcelorMittal

This is the top pick at Jefferies and makes a solid holding. 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. The company was formed from the merger of Arcelor and Mittal Steel in 2006. It is the leader in all major global markets, including automotive, construction, household appliances and packaging. Its industrial presence in Europe, Asia, Africa and America gives it exposure to all the key steel markets, from emerging to mature.

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. While its steel operations are important customers, the company’s supply to the external market is increasing rapidly.

ArcelorMittal investors receive a 1.48% dividend. The Jefferies target price for the stock is $28.80, and the Wall Street consensus estimate is $27.26. Shares closed Monday’s trading at $13.22 apiece.

Cleveland-Cliffs

Jefferies likes this top mining play. Cleveland-Cliffs Inc. (NYSE: CLF) is a mining and natural resources company. It is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The company’s segments include U.S. Iron Ore and Asia Pacific Iron Ore. Operations of the latter are located in Western Australia and consist of its Koolyanobbing operation.

While the company is a pure play iron ore miner, Cleveland-Cliffs offers high leverage to U.S. steel prices and production as U.S. contracts are linked to a mix of seaborne iron ore and U.S. steel prices.

Cleveland-Cliffs investors receive a 2.84% dividend. Jefferies has its price target set at $15 and the posted consensus target is $13.30. The stock closed at $8.17 a share on Monday.

Commercial Metals

Shares of this lesser-known steel company provide solid value for investors at current trading levels. Commercial Metals Co. (NYSE: CMC) manufactures, recycles and markets steel and metal products and related materials and services in the United States and internationally.

As one of the leading suppliers to the nonresidential construction sector, Commercial Metals has revived as that area of the market has picked up. The U.S. Architecture Billings Index, an economic indicator that provides a growth forecast of nonresidential construction spending activity nine to 12 months out, has shown very consistent growth, and that bodes well for the company.

Shareholders receive a 2.94% dividend. The $21 Jefferies price target compares with the $19.89 consensus target. The stock closed most recently at $16.20.

Nucor

This top steel company should continue to do very well if the economy sees continued strength this year and nonresidential construction grows. Nucor Corp. (NYSE: NUE) is one of North America’s largest steel producers, with almost 27 million tons of finished steel capacity at 23 mini-mills throughout the United States. The company’s downstream steel products business includes rebar fabrication, steel joists/deck, cold finished bars, fasteners, building systems and wire mesh. Nucor also has 5 million tons of scrap processing capacity.

Nucor has always kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially if a huge infrastructure build-out becomes a reality. In addition, global weather catastrophes have also helped continue to drive the need for steel products.

Nucor investors receive a solid 3.13% dividend. Jefferies has a price target of $63. The consensus price target is slightly lower at $61, and the stock closed most recently at $49.34.

Steel Dynamics

This is another steel company on which Jefferies remains very positive. 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.

The dividend yield for investors is 3.17%. Jefferies has set a $35 price target. The consensus target is right in line at $34.82, and the stock closed at $27.38 per share.

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Investors should remember that while initially there was some downside pressure on pricing, the removal of tariffs is critical for U.S. exports, especially to Mexico, and the long-term outlook should improve dramatically. Plus, the approval of the new Mexico/Canada trade deal to replace NAFTA would be an overall strong positive as well.

Lastly, all these stocks are trading near 52-week lows, and the companies pay dependable dividends. The risk/reward metrics for the sector look solid for investors with long-term investment horizons.

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