Reliance Steel & Aluminum (NYSE:RS) — This is the largest metals service center company in the United States.
S&P Capital IQ rates it a “strong buy.” Its analysts have a 12-month target price of $70 on RS stock, which is 14.4 times their 2015 earnings estimate of $4.85 per share and represents a 5% discount to its peer targets. Earnings are expected to jump 17% in 2016 on a 4.7% increase in revenue. The company’s growth should be spurred by an aggressive acquisition program, U.S. economic expansion, and a recovery in both residential and non-residential domestic demand.
Technically, RS stock broke from a bearish resistance line that had been in effect since a secondary high just below $74 in September. In February, the stock experienced a high-volume break through its 50-day moving average. Since then, it has been trading in a narrow bull channel with support from its 20-day moving average, now at $60.
MACD flashed a short-term sell signal on Thursday, but that signal should provide us with an opportunity to buy RS stock at my buy under price of $58 since ultimate support is at its 50-day moving average, now at $57.27. A stop-loss order should be entered under $54. The trading target matches Capital IQ’s fundamental target of $70, which would provide traders with a return of more than 20%.
RS stock can also be purchased as a long-term, cornerstone investment in the domestic steel industry. The company pays an annual dividend of $1.60 per share for a forward yield of 2.6%.
