Infrastructure

Merrill Lynch Raises Targets on Trump Metal and Infrastructure Winners

Lee Jackson

Published: November 23, 2016 9:42 am

Last Updated: January 12, 2020 5:29 pm

If there is one thing this country desperately needs, it’s a massive infrastructure project that will help to fix and refurbish our crumbling bridges, roads, airports, and so much more. Both of the presidential candidates talked about the importance of infrastructure during their campaigns, and now President-elect Donald Trump is proposing a plan that will cost as much a $1 trillion.

In a recent set of research reports from Merrill Lynch, analysts see the writing on the wall. Given the strong performance of many companies likely to benefit from the massive projects, the firm has raised price targets on many of the stocks. We screened the list for stocks the analysts have as Buy rated.

AK Steel

This company has been on a roll and offers investors a solid entry point at current levels. AK Steel Holding Corporation (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; and 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; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania.

The Merrill Lynch price target is raised to $12 from $8. The Wall Street consensus price objective is much lower at $6.66. The shares closed Tuesday at $8.89 up almost 11%.

Allegheny Technologies

This company has hit our insider buying screens in the past and also makes good sense for long-term accounts. Allegheny Technologies, Inc. (NYSE: ATI) produces and sells specialty materials and components worldwide. The company operates through two segments: High Performance Materials & Components and Flat-Rolled Products. The High Performance Materials & Components segment provides various high-performance materials, including titanium and titanium-based alloys; nickel-and cobalt-based alloys and superalloys; zirconium and related alloys, such as hafnium and niobium, advanced powder alloys, and other specialty materials, in long product forms of ingots, billets, bars, rods, wires, shapes and rectangles, and seamless tubes, plus precision forgings, castings, components, and machined parts.

The Flat-Rolled Products segment produces, converts, and distributes stainless steel, nickel-based alloys, specialty alloys, and titanium and titanium-based alloys in various forms, including plate, sheet, engineered strip, and Precision Rolled Strip products, as well as grain-oriented electrical steel. This segment serves oil and gas/chemical and hydrocarbon processing industry, electrical energy, automotive, food processing equipment and appliances, construction and mining, electronics, communication equipment and computers, and aerospace and defense markets.

Shareholders are paid a 1.8% dividend. The Merrill Lynch price target jumped to $20 from $19. The consensus is at $19.13. The shares close yesterday at $17.77 up 7.5%.

Commercial Metals

Top Wall Street analysts have remained very positive on this company for years. Commercial Metals Company (NYSE: CMC) manufactures, recycles, and markets steel and metal products, and related materials and services in the United States and internationally. It operates through five segments: Americas Recycling, Americas Mills, Americas Fabrication, International Mill, and International Marketing and Distribution.

As one of the leading suppliers to the non-residential construction sector, Commercial Metals has revived as that area of the market has picked up. The U.S. Architecture Billings Index (ABI), an economic indicator that provides 9-to-12-month growth forecast of non-residential construction spending activity, has shown growth in 21 of the last 24 months.

Shareholders are paid a solid 2.16% dividend. The Merrill Lynch price target for the stock is raised to $24 from $20, while the consensus is at $18.10. The shares closed Tuesday at $22.18.

Nucor

This top steel company could do very well if the economy sees a solid pick-up next year and the infrastructure push is in place. Nucor Corporation (NYSE: NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. 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. Nucor, through The David J. Joseph Company, also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap. Nucor is North America’s largest recycler.

While the residential construction market could slow down some in 2017 after years of a very torrid pace, Merrill Lynch and other top Wall Street analysts remain positive on non-residential commercial construction. Nucor has always 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 are paid a very solid 2.41% dividend. The Merrill Lynch price target is raised to $65 from $57, while the consensus price target is set at $54.69. The stock closed Tuesday at $62.31.

Steel Dynamics

This company rounds out the top companies rated Buy that Merrill Lynch is raising price targets on. 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 tons of 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 company’s 2015 revenues were $7.6 billion.

Steel Dynamics investors are paid 1.6% dividend. The Merrill Lynch price target for the stock is raised to $37 from $30, and the consensus is set at $31.89. The stock closed Tuesday at $35.29.

All of these companies have traded dramatically higher, so it may make sense to buy partial positions here, and see if the market doesn’t pullback from record highs. Either way, steel prices are expected to remain solid in 2017, and the potential for some trade barriers to foreign steel could also prop up things.