The rotation from high growth-stocks into value stocks has been a key theme of September. It also means that shares of the companies that had lagged the broader bull market were starting to shine. Companies valued at 10 times earnings, or anywhere close to that, have been prized in recent trading sessions. Investors just need to keep in mind that being a “cheap” stock or sector is almost always that way for more than just one reason.

One group hurt handily during the tariff and trade war news was the base metals. Gold had risen and risen due to lower interest rates and geopolitical uncertainties, but gold often moves higher for vastly different reasons that the economically aligned companies tied to steel, aluminum, copper and so on. The base metals have to do well in economic expansions because it takes all those metals to build houses, offices, apartments, ships, planes and so on.

24/7 Wall St. has taken a look at many of the top base metals stocks. The gains from the bottom have proven to be high, but the discounts from their 52-week lows also should stand out as massive. And this is a time when the S&P 500 has returned to within 1% of its all-time high, which was hit earlier this summer.

There were downgrades for the steel industry even this summer, and some bottom-fishing investors that used these panic-exit calls have done well in their efforts. That said, in August a report from Jefferies pointed to value and upside in the industry. On September 4, Merrill Lynch lowered its expectations for steel companies based on weaker volumes and prices in a macro-view, and the firm noted few to no catalysts ahead. Still, many investors and workers remain hopeful that a large U.S. infrastructure bill ultimately will get passed.

While the bounces and performance by and large have been rather strong in recent days, investors likely will need more conviction than bottom-fishing for the sake of the value stocks having underperformed for too long. On that front, if that recession the media keeps blaring about daily does actually come, there probably are not too many investment portfolios that are going to want to be loaded up on steel and other metals stocks that are very economically sensitive.

Here is a look at the U.S.-based base metals stocks that have most of their operations in North America and are tied to trade. The large international steel and metals giants have been left out, and many of them are not recovering at the same clip. Another issue to consider is that by the time large market rotations are covered in-depth, much of the trade or opportunity already has played out. Consensus earnings estimates and price targets are from Refinitiv.

AK Steel Holding Corp. (NYSE: AKS) recently traded down 1.1% to $2.80, in a 52-week range of $1.66 to $5.11. The consensus price target is $2.01, and the market cap is $960.5 million. Shares rallied 30% in the past week. However, the stock is down 33% in the past year.

AK Steel’s big bottom was seen back at the end of May, when the stock market was in panic mode, and it is still under the $3.00 high seen at the end of July. The company recently announced that it was closing a plant in Kentucky and laying off 260 employees at a plant that reportedly sat mostly idle for the past three years. While the stock is valued at seven times expected 2019 earnings, that is a declining earnings picture from 2018, and that decline in per-share earnings is expected to continue in 2020.

Alcoa Corp. (NYSE: AA) traded up nearly 1% at $22.37, in a 52-week range of $16.46 to $45.45. The consensus price target is $28.67, and the market cap is $4.4 billion. Alcoa has rallied 21% in the past week, but the stock is down closer to 47% over the past 52 weeks.

Alcoa recently benefited from a Credit Suisse upgrade to Outperform from Neutral, and the firm raised its target price to $27 from $26. It remains to be seen if the recent breaking out of a downward channel will remain in place, and $24 is a level that acted as broken support in May and then acted as resistance throughout July. Alcoa made $3.58 in earnings per share in 2018, but that is expected to be a slight loss in 2019 and to recover to only $1.40 per share in 2020.

Shares of Arconic Inc. (NYSE: ARNC), the specialty metals and engineered products group that was spun out of Alcoa, were relatively flat on Thursday at $26.95. The 52-week range is $15.63 to $27.17, the consensus price target is $27.88 and the market cap is $11.9 billion. Arconic has gained 3.5% in the past week, and shares are up 22% in the past year.

Unlike many of the other metals companies, Arconic was down close to $16 in early 2019, and its shares had been in an uptrend up to $26 until the start of July, only to post another breakout above that level in September. Barclays upgraded it to Overweight from Equal Weight on August 7, as well as raised its target price to $31 from $20. Arconic is still expected to post earnings per share growth in 2019 and 2020, and its forward blended earnings multiple would be about 12, with expected revenue growth of about 3%.

Cleveland-Cliffs Inc. (NYSE: CLF) traded down 1.1% at $8.14, in a 52-week range of $6.64 to $13.10. Its consensus target price was $12.55, and its market cap is $2.3 billion. It also comes with a 2.9% dividend yield. This stock had rallied about 15% just in the past week alone, though it is still down about 25% from a year ago.

Cleveland-Cliffs was at $11.00 at the start of August, but its shares fell to as low as $7.00 by the end of the month. Zacks recently featured the iron-ore mining player as among the top 20% of value stocks in recent days, but the growth and fundamentals were not shown as positives by a long shot.

Commercial Metals Co. (NYSE: CMC) traded up 1.3% to $18.76, in a 52-week range of $13.27 to $21.90. The consensus price target is $19.89, and the market cap is $2.2 billion. Shares rallied 19% in the past week, but they are down about 9% in the past 52 weeks.

Commercial Metals saw a sharp recovery last week, and its shares even managed to get back above the $18.25 resistance level that was a block in July and in April. Its revenues have been growing, and 2018 and 2019 are both expected to show single-digit percentage gains. The stock is valued at just 9.0 times expected earnings in 2019 and even lower at about 8.4 times expected earnings for 2020.

Freeport-McMoRan Inc. (NYSE: FCX) mines for copper, gold, molybdenum, silver and other metals, but it also has exposure to oil and gas. Shares were up about 3% at $10.40, in a 52-week range of $8.58 to $14.90. The consensus price target is $13.08, and the market cap is $15.1 billion. Freeport-McMoRan rallied 8.5% in the past week, but the shares are still down 23.6% in the past year.

Freeport-McMoRan saw three analyst upgrades in July, but only one of them was to Buy, and none of the targets at the time was very robust. This stock peaked above $14 in April, and there is sharper resistance up in the $11.50 to $12.00 range.

Nucor Corp. (NYSE: NUE), which recently announced the retirement of Chair and CEO John Ferriola, saw its shares relatively flat on Thursday at $53.29. The 52-week range is $46.10 to $66.03. The consensus price target is $59.46, and the market cap is $16.3 billion. Nucor rallied 8% in the past week, and shares are down 14.7% in the past year.

While Nucor shares have bounced handily from $47.00 in August, it has seen a rolling series of lower-highs and lower-lows that technicians would say is quite bad.

Reliance Steel & Aluminum Co. (NYSE: RS), which is more of a services and fabrication company within major metals, was last seen up 0.5% at $103.88, in a 52-week range of $68.62 to $105.25. The consensus price target is $102.60, and the market cap is $6.9 billion. Its shares have gained about 4% in the past week, and over the past year the shares are up 21.6%.
Reliance Steel & Aluminum also has lived up to its low/no exposure to prices, as it has been a strong stock throughout 2019. The most recent move was above resistance at $100 to $102, and it is still “cheap” at about 11 times expected 2019 earnings.

Southern Copper Corp. (NYSE: SCCO) is U.S.-based but operates mainly in Peru, Mexico, Argentina, Ecuador and Chile. Shares were trading up 1.3% at $35.00, in a 52-week range of $29.01 to $44.59. The consensus price target is $37.27. The market cap is $27.1 billion. Shares have rallied 9.4% in the past week, but they are down 12.5% in the past 52 weeks.

Southern Copper also was up in 2019, but the big peak was up at $42.00 in April. A summer recovery peaked at $39.00 before another sell-off, and the recovery in July then peaked at $38.00. The next level of $35.50 has acted as support and resistance.

Steel Dynamics Inc. (NASDAQ: STLD) was relatively flat on Thursday, at $37.19 in a 52-week range of $25.03 to $48.17. The consensus price target is $33.30, and the market cap is $7.2 billion. Over the past week, shares have gained 17.6%, but they are down nearly 13% in the past 52 weeks.

Steel Dynamics screens out as being up in 2019, but that is after a brutal end of 2018 and after peaking at $39.00 in February. The stock appears cheap, at 10 times expected earnings, but there is a large drop in expected earnings from 2018’s $5.49 EPS down to $3.20 EPS this year and then to $3.02 per share in 2020. That is with more than a 7% drop in revenues this year and about a 1% expected revenue drop in 2020.

United States Steel Corp. (NYSE: X) was down 3% at $12.83 on Thursday, and it failed to create a rerating for the steel group earlier in 2019. The 52-week range is $10.16 to $30.91, the consensus price target is $13.50 and the market cap is $2.4 billion. Shares gained 17.5% in the past week. However, the stock is still down 54% in the past 52 weeks

This year just has not been kind to U.S. Steel, to the point that Hyman Roth might not even want to brag about the mob being larger than it is anymore. After peaking at just over $24.00 in February, U.S. Steel had seen a rolling series of lower-highs, up until this latest break above $12.50. The earnings per share above $5.00 in 2018 might sound like this is dirt cheap, but the consensus estimates of $1.01 per share in 2019 and $0.58 per share in 2020 tell a much different story. Revenues also are projected to contract by almost 6% in 2019 and another 3% in 2020, after peaking at $14.2 billion in 2018.

It’s easy to see why a rotation into value over growth would be kind to the battered metals group. That said, burying these stocks during the depths of even a moderate recession probably will look like a smarter trade than jumping in and holding these throughout a recession. Also, the investing community is not in unison about whether a recession is really in store heading into 2020.

The one-year chart montage from StockCharts.com has been provided below, with the final chart being a comparison to the S&P 500.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.