Markets are still looking for a direction after a fairly slow start to August. While a recovery appears to be underway, with four straight weeks of gains for the S&P 500, investors are still looking for investments that can outpace the market and yield solid upside. One major Wall Street firm thinks it has found a few metal stocks that could benefit greatly going forward.
BMO Capital Markets issued a few calls on metal fabrication stocks in which it sees significant potential upside. Considering the current inflationary climate, finding upside is key to keeping pace with the recovery from the market lows this summer. Katia Jancic was the lead analyst for each of these calls.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Reliance Steel & Aluminum
BMO Capital Markets initiated coverage on Reliance Steel & Aluminum Co. (NYSE: RS | RS Price Prediction) with an Outperform rating and a $230 price target. That implies upside of 17% from the most recent closing price of $197.20.
According to Jancic, Reliance’s model is centered around small, spot-based orders, metals/product mix diversification and increasing value-added processing capabilities. Overall, she believes that all these factors give the firm a meaningful competitive advantage, above-peer margins and solid through-cycle performance.
The stock traded at around $194 on Tuesday, in a 52-week range of $135.46 to $211.66. Shares are up 21% year to date. It has a 1.8% dividend yield.
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Ryerson
On Ryerson Holding Corp. (NYSE: RYI), the upgrade was to Outperform. The $35 price target implies upside of 22% from the most recent closing price of $28.61. For this call, Jancic assumed coverage of the stock in conjunction with a broader sector initiation.
Ryerson, the second-largest metals distributor and processor in North America, successfully has transformed itself financially and operationally since its initial public offering in 2014 and is well-positioned to deliver improved results through the cycle, Jancic tells investors. Shares trade at “relatively low multiples,” she concluded.
The stock has a 52-week trading range of $17.90 to $44.09, and shares traded near $32 apiece on Tuesday. The stock is up nearly 21% year to date. The dividend yield is 1.6%.
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Worthington Industries
BMO started coverage of Worthington Industries Inc. (NYSE: WOR) with a Market Perform rating and a $58 price target. The implied upside from the most recent closing price of $54.95 is about 6%.
Overall, Worthington’s focus on expanding margins and growing EBITDA and free cash flow, while reducing earnings volatility, offers potential for further long-term multiple expansion. However, Jancic contends that current multiples and relatively higher steel processing exposure amid declining flat-rolled steel keeps her on the sidelines for the stock.
The stock traded at around $54 early on Tuesday, in a 52-week range of $39.14 to $62.83. Shares are basically flat year to date. It has a dividend yield of 2.3%.
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