Steel demand is set to spike, and these top steel stocks are among those best positioned to capitalize on the opportunity—analysts at FitchRatings project steel demand to grow by as much as 30 million global tons. The same analysts expect improved margins across most major steelmaking countries (except China, in this case) and North American steel sectors to increase self-reliance and move away from national net import status.
Top steel stocks are tricky to pick because, as with any commodity stock, high capital expenditures, global supply chains, interest rates and more combine to make pricing tricky and volatile. But each of these three top steel stocks is strong on its own merits, which, combined with an improved sector outlook, could mean big things in 2024.
US Steel (X)
US Steel (NYSE:X) stands out as (potentially) the premier top steel stock of 2024, though perhaps not for the expected reasons. A few weeks ago, I wrote about US Steel’s status as a prime candidate for merger arbitrage in 2024. Interest in the deal has only accelerated since then.
In essence, Nippon Steel Corporation of Japan aimed to acquire U.S. Steel at $55 per share, offering a decent premium over current pricing. However, legislators from both political parties have voiced opposition to the acquisition, leading to uncertainty and volatility.
Former President Trump has entered the scene, declaring his intention to block the deal on his first day back in office if he gets re-elected. President Biden also expressed reservations, providing union workers with a “personal assurance” that he would support them should they oppose the transaction. But the latter point may prove moot as the United Steelworkers Union prepares to kickstart confidential negotiations with Nippon Steel.
Regardless of the outcome, US Steel is attracting more attention now than in years. Should the acquisition proceed, it presents a solid opportunity for merger arbitrage. If the deal falls through based on government meddling, it’ll prove US Steel is essential to national stability – making it a top steel stock to hold for the long run.
ArcelorMittal (MT)
ArcelorMittal (NYSE:MT) is not only a top steel stock but a wildly overlooked value stock in today’s market. The company trades at shockingly low multiples—0.4x book value and 0.3x sales—and offer investors a solid 7.4% total yield when accounting for buybacks.
Lest we assume MT is a value trap, looking at the company’s financials tells another story. The company stands out among top steel stocks and most commodity companies because its profit improved post-pandemic, even as supply chain shocks destabilized global commerce. In 2020’s Q3, the company posted the last in a long string of quarterly earnings losses. Since then, MT has posted a profit each quarter, culminating in a $5.04 EPS over the preceding twelve months. At the same time, the company aggressively right-sized its balance sheet, slashing debt as rates rose and bringing quarterly interest expenses from $123 million in 2022’s Q4 to just $31 million in the most recent period.
ArcelorMittal is a solid top steel stock and, with fundamentals this strong, priced to buy today when combined with a willingness to work toward partial decarbonization (with $1.41 billion in state aid to boot).
Steel Dynamics (STLD)
Steel Dynamics (NASDAQ:STLD) is a top steel stock based on its size as America’s third-largest producer but also from its role in sustainable manufacturing. The company’s core operational segments include robust metals recycling, which helps it boost its profit margin while helping keep quality metals in circulation. And, like MT, STLD offers value-focused investors a solid 8.14% total yield at an attractive valuation. Better yet, STLD consistently boosts its dividend, with the most recent hike hitting an 8% increase to $0.46 per share. That marks five years of consistent dividend hikes alongside a 100% quarterly payment rate over the same period—demonstrating STLD’s consistency and emphasis on shareholder value.
2023 marked STLD’s second-best year in revenue as sales hit $18.8 billion and a respectable $2.5 billion net income. Critically, over the same year, STLD affirmed its commitment to shareholders by repurchasing 8% of its total shares—a hefty chunk of change considering higher debt costs and the inherently pricy nature of steelmaking and related operations.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
