3 Steel Stocks Ready to Build Big Gains

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Since last summer, materials stocks have been in the doghouse as investors have bailed on fears over the health of the global economy.

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Source: iStockphoto

Miners, metal makers, paper companies, chemical producers and more are all closed connected to the economic cycle. Thus, the Materials Select SPDR (NYSEARCA:XLB) is trading at levels first reached last August.

But change is in the air.

Investors are growing increasingly confident that with winter’s chill fading, the U.S. economy (and consumers in particular) are revving up. Europe is in the midst of the implementation of a new bond-buying stimulus by the European Central Bank. And in Asia, China is perking up on expectations of new stimulus from the People’s Bank of China.

As a result, materials stocks are enjoying a bit of relative strength with steel stocks in particular beginning to shine. Here are three steel stocks that look ready for big gains.

Steel Stocks to Buy: United States Steel Corporation (NYSE:X)

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Shares of United States Steel Corporation (NYSE:X) have broken up and out of a consolidation pattern going back to December this week on hopes of a more balanced steel market as imports slow and demand rebounds. In fact, X stock has gained 15% in the past three months.

The first stop to the upside will be a run to the 200-day moving average, which should be worth about a 20% move from here. I’ve recommended May call options in X to my Edge Pro subscribers.

Steel Stocks to Buy: AK Steel Holding Corporation (NYSE:AKS)

steel-stocks-aks-stockAK Steel Holding Corporation (NYSE:AKS) is popping out of a consolidation pattern going back to January, potentially ending a downtrend that started last August.

Management guided down back in March by cutting their Q1 EPS forecast to a loss of 23 to 28 cents per share (vs. the three-cent profit analysts were expecting). The cut was due to lower-than-expected carbon steel shipments and prices on a flood of what the company believes are unfairly traded imports.

But now, there are signs supply and demand is coming into balance. Japan’s Nippon Steel is set to curb steel production over the next three months by about 10%.

A move to the 200-day average would be worth a 35% gain from current levels. I’ve recommended May call options in AKS to my Edge Pro subscribers.

Companhia Siderurgica Nacional (ADR) (NYSE:SID)

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Brazilian steelmaker Companhia Siderurgica Nacional (ADR) (NYSE:SID), like the other two names here, has been stuck in the mud for a year after suffering a dramatic wipeout from highs set last summer. Shares lost as much as 71% into the double-bottom set in December and January as weakness and currency turmoil in Brazil added to the industry-wide malaise hitting other steel stocks.

With the U.S. dollar pulling back over the last two weeks, emerging market currencies like the real should see some relief — boosting SID to its 200-day average for a gain of about 40%.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/3-steel-stocks-ready-to-build-big-gains/.

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