For the first time in a decade, heading into December, we see a credible long-term investment case for steel equities. President-elect Donald Trump’s policies to spend big on the nation’s infrastructure and trade protection plans should benefit the steel industry by both increasing demand and curtailing import supply.
Trump’s win has brought back shine to steel stocks, dispelling the gloom plaguing them since 2010. Several analysts, in the meantime, have turned bullish on steelmakers in recent times, which call for investing in such companies.
Trump Win Makes Steel Shine Again
Steel stocks have been on a tear since Trump was elected as the 45th U.S. president. Trump’s plans of increased infrastructure spending and a further cut on China-produced steel are reasons enough to invest in such stocks after almost 10 years.
Trump has vowed to “fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals”. He has promised to double infrastructure spending than what his competitor Hillary Clinton had assured. This puts his proposed spending at around $550 billion, while Clinton had estimated $275 billion over the next five years (read more: 4 Stocks to Gain From Trump’s Infrastructure Push).
Such stimulus plans would mean more steel consumption as it is an important component in many infrastructure products, while its demand is likely to increase by almost 20% annually for five years. This in turn will boost the top line of steel companies.
Trump, on the other hand, intends to impose a 45% tariff on Chinese imports in the U.S., which will lend further protection to domestic steel companies. This has reversed the stance from bearish to bullish of a number of analysts last year.
U.S. Imposes Duty on Chinese Steel Imports
Earlier this year, the government’s initiative to penalize the dumping of steel by Asian countries worked in favor of domestic companies. The Commerce Department imposed import taxes as high as 522%, which gave domestic companies a strong foothold.
This was mostly meant to punish Chinese steelmakers, who were dumping or selling steel at a loss to gain market traction. Lakshmi Mittal, CEO and controlling owner of ArcelorMittal SA (ADR) (MT), had said that the Chinese steel industry lost $10 billion last year, which sheds light on the dumping activities.
Steel Stocks on a Tear
Expectations of an increase in U.S. demand for steel under Trump presidency have helped steelmakers stage a comeback. United States Steel Corporation (X), the once iconic American enterprise, skyrocketed more than 50% since Trump won the election, while the company has been having a nightmarish time since the global financial crisis of 2008.
Other steelmakers including AK Steel Holding Corporation (AKS), Nucor Corporation (NUE) and ArcelorMittal have joined the party, surging 52%, 20.1% and 9.4%, respectively, since the U.S. presidential election.
The boarder SPDR Metals and Mining ETF (XME), whose top holdings are U.S. Steel and AK Steel, is up 17.3% since the election.
4 Steel Stocks to Stuff
Trump’s victory drove steel stocks north, apparently on the belief that his administration will propel infrastructure spending and provide trade protection. Banking on such bullishness, investing in fundamentally sound steel stocks seems to be a good proposition.
We have, thus, selected four steel stocks that have significant operations in the U.S. but aren’t overly exposed to the Asian market. These stocks boast a Zacks Rank #2 (Buy) and a Value Style Scores of ‘A’ or ‘B’. Thanks to our new style score system, we have been able to identify value stocks which have incredible potential in the near term.
AK Steel Holding Corporation produces flat-rolled carbon, stainless and electrical steel, and tubular products mostly in the U.S. The company has a Value Score of ‘B’. AK Steel’s estimated growth rate for the current year is a whopping 205.8%, way above the industry’s growth rate of 15.3%. The Zacks Consensus Estimate for its current year earnings soared 33.3% over the last 60 days.
Companhia Siderurgica Nacional (ADR)‘s (SID) steel segment is engaged in the production, distribution and sale of flat steel, long steel, metallic containers and galvanized steel, with operations not only in Brazil, Portugal and Germany, but also in the U.S. The company has a Value Score of ‘B’. Meanwhile, its estimated growth rate for the next year is a solid 76.7% while that of the industry is 18.7%. The Zacks Consensus Estimate for its current year earnings increased 10.4% over the last 60 days.
Gerdau SA (ADR) (GGB) is a manufacturer of long steel in both North and South America, and is also engaged in the production and commercialization of steel products in the U.S. The company has a Value Score of ‘B’. The company’s estimated growth rate for the next year is 280%. The Zacks Consensus Estimate for its current year earnings surged 150% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ternium SA (ADR) (TX) is a manufacturer of flat and long steel products with production centers in several counties in South America and the U.S. The company has a Value Score of ‘A’. Ternium’s estimated growth rate for the current year is an encouraging 187%. The Zacks Consensus Estimate for its current year earnings improved 13.3% over the last 60 days.
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