In this article, we will take a look at the 10 best steel stocks to buy according to analysts.
The steel industry plays a pivotal role in the progress of any economy. Its products are used in almost all the industries including energy, construction, automotive and transportation, infrastructure, packaging and machinery. The biggest consumer of steel is the housing and construction sector which uses more than half of the steel produced every year.
There has been a push towards increasing steel production through green production methods by controlling the carbon emissions generated during the process of steel production. As part of this effort, companies are focusing on employing green energy resources such as renewable energy to generate electricity which is utilized in the production process. Steel is primarily produced by two methods: the blast furnace or the Electric Arc Furnace (EAF). The blast furnace method utilizes coal, iron ore, and limestone to produce pig iron while EAFs use an electrical current to melt scrap steel, direct reduced iron, and/or pig iron, to produce molten steel. The use of EAFs to produce steel has expanded and currently accounts for more than two-thirds of steel production in United States. In addition, recycling scrap metals to produce steel can also support the effort.
According to a report by the World Steel Association, global crude steel production slowed down in 2022 from 1,962 million tons to 1,885 million tons, while the demand stood at 1,781 million tons. Production slightly increased on a year-on-year basis to 1,891 million tons in 2023. The demand was impacted by high inflation, interest rate increases, lockdowns in China, and the Russia-Ukraine conflict. The demand is expected to slightly recover and reach 1,822 million tons in 2023, with a further 1.7% growth expected next year. According to a report by Fitch Ratings, the global demand for steel is expected to grow in most regions globally and consumption in 2024 is expected to increase by 20 to 30 million tons compared to 2023.
Last year on December 23, Nippon Steel Corporation, Japan’s largest steelmaker and one of the world’s leading steel manufacturers, announced that it has entered into a definitive agreement to acquire United States Steel Corporation (NYSE:X) in an all-cash transaction valued at $14.9 billion. The transaction, expected to close in Q3 2024, has garnered criticism from US lawmakers as well as other stakeholders including the United Steelworkers union. On February 26, United Steelworkers announced the signing of a non-disclosure agreement with Nippon Steel as the company remains committed to the timely closing of the transaction.
Following the transaction, the industry will be left with three major American-owned steel producers, Nucor Corporation (NYSE:NUE), Steel Dynamics, Inc. (NASDAQ:STLD), and Cleveland-Cliffs Inc. (NYSE:CLF).
A steel coil being loaded into a facility for further processing and distribution.
Methodology
We used stock screeners to identify the companies that operate in the steel industry and shortlisted the stocks with market capitalizations of more than $300 million. The final step involved the ranking of the identified list of stocks based on their respective analyst ratings. We have ranked the stocks in the descending order of their analyst ratings, on a scale of 1 to 5 where 1 represents a strong buy, 2 represents a buy rating and the subsequent numbers represent hold, sell, and strong sell ratings, respectively.
We have also provided hedge fund sentiment data, sourced from Insider Monkey’s database of more than 900 prominent hedge funds, for the stocks in our list of 10 best steel stocks to buy according to analysts. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10 Best Steel Stocks to Buy According to Analysts
10. Cleveland-Cliffs Inc. (NYSE:CLF)
Average Analyst Rating: 2.50
Number of Hedge Fund Holders: 39
Founded in 1847 as a mine operator, Cleveland-Cliffs Inc. (NYSE:CLF) is the largest flat-rolled steel producer and also the largest manufacturer of iron ore pellets in North America. The company is vertically integrated from mined raw materials, direct reduced iron, and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling, and tubing.
On January 29, Cleveland-Cliffs Inc. (NYSE:CLF) released its financial results for Q4 2023. Its revenues increased by 2% y-o-y to $5.1 billion, while net loss shrunk 32% y-o-y to $139 million. Its normalized EPS of -$0.05 was in-line with the consensus estimates.
As of Q4 2023, Cleveland-Cliffs Inc. (NYSE:CLF) shares were owned by 39 hedge funds tracked by Insider Monkey, the highest on our list of 10 best steel stocks to buy according to analysts. David Greenspan’s Slate Path Capital was the lead hedge fund shareholder with ownership of 7.0 million shares valued at $142 million.
9. Gerdau S.A. (NYSE:GGB)
Average Analyst Rating: 2.20
Number of Hedge Fund Holders: 13
São Paulo, Brazil-based Gerdau S.A. (NYSE:GGB) is the largest steel producer in Brazil and one of the leading producers of long steel in the Americas. A significant portion of the steel produced by the company each year comes from recycled steel scrap.
Gerdau S.A. (NYSE:GGB) has a history of solid dividend payouts. Based on the dividends paid in 2023 and latest share price, its shares have a dividend yield of 5.21%, the second highest on our list of 10 best steel stocks to buy according to analysts.
On January 17, Gerdau S.A. (NYSE:GGB) announced that it has agreed to sell its 49.85% stake in Gerdau Diaco S.A. and its 50.00% Gerdau Metaldom Corp., joint ventures operating in Colombia, Dominican Republic, Panama, and Costa Rica. INICIA Group is acquiring the stakes with a total base price of $325 million.
8. Reliance, Inc. (NYSE:RS)
Average Analyst Rating: 2.14
Number of Hedge Fund Holders: 31
Scottsdale, Arizona-based Reliance, Inc. (NYSE:RS), formerly known as Reliance Steel & Aluminum Co., is a leading diversified metals solutions provider. It offers a full range of value-added metals products including galvanized, hot-rolled, and cold-finished steel, stainless steel, aluminum, brass, copper, titanium, and alloy steel, among others.
Reliance, Inc. (NYSE:RS) has grown rapidly with intermittent acquisitions to bolster its product offerings and to expand its network. In February, the company agreed to acquire American Alloy Steel, Inc., a specialty carbon, and alloy steel plate distributor with annual sales of $310 million, and acquired Cooksey Iron & Metal Co., Inc., a metal services center with $90 million annual sales.
Reliance, Inc. (NYSE:RS) has paid regular quarterly cash dividends for 64 consecutive years without reduction or suspension. On February 13, its Board of Directors declared a quarterly cash dividend of $1.10 per share which represents a 10% increase.
7. Commercial Metals Company (NYSE:CMC)
Average Analyst Rating: 2.11
Number of Hedge Fund Holders: 28
Commercial Metals Company (NYSE:CMC), based in Irving, Texas, is a steel company that manufactures, recycles, and fabricates steel and metal products and provides related materials and services. It is the largest manufacturer of steel reinforcing bar (rebar) in North America and Central Europe.
On January 8, Commercial Metals Company (NYSE:CMC) released its financial results for the quarter ended November 30, 2023. Its revenue decreased by 10% y-o-y to $2.0 billion while net income shrunk 33% y-o-y to $176 million. Its normalized EPS of $1.63 surpassed consensus estimates by $0.16.
Commercial Metals Company (NYSE:CMC) has a robust dividend payment plan and has paid regular quarterly dividends for 236 consecutive quarters. On January 4, the Board of Directors of the company declared a regular quarterly dividend of $0.16 per share.
6. Olympic Steel, Inc. (NASDAQ:ZEUS)
Average Analyst Rating: 2.00
Number of Hedge Fund Holders: 12
Cleveland, Ohio-based Olympic Steel, Inc. (NASDAQ:ZEUS) is a leading U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products.
On February 22, Olympic Steel, Inc. (NASDAQ:ZEUS) released its Q4 2023 financial results. It generated a net revenue of $489 million and a net income of $7.4 million which translates to an EPS of $0.64, $0.45 more than consensus estimates.
The Board of Directors of Olympic Steel, Inc. (NASDAQ:ZEUS) declared a regular quarterly cash dividend of $0.15 per share which represents a 20% increase from its previous dividend payout.
5. Radius Recycling, Inc. (NASDAQ:RDUS)
Average Analyst Rating: 2.00
Number of Hedge Fund Holders: 14
Ontario, Canada-based Radius Recycling, Inc. (NASDAQ:RDUS), formerly known as Schnitzer Steel Industries, Inc., is one of the largest manufacturers and exporters of recycled metal products in North America with operating facilities located in 25 states, Puerto Rico, and Western Canada.
On January 4, Radius Recycling, Inc. (NASDAQ:RDUS) released its financial results for the quarter ended November 30, 2023. It generated a revenue of $673 million and a net loss of $18 million. The Board of Directors of the company also declared a quarterly dividend of $0.1875 per share.
On our list of 10 best steel stocks to buy according to analysts, Radius Recycling, Inc. (NASDAQ:RDUS) has the highest upside potential based on the average analyst target price of $35.00 which is 45.83% more than the latest share price.
4. POSCO Holdings Inc. (NYSE:PKX)
Average Analyst Rating: 1.78
Number of Hedge Fund Holders: 9
Pohang, South Korea-based POSCO Holdings Inc. (NYSE:PKX) is a leading steel producer with operations across six continents. Its offerings include hot rolled steel, steel plates, wire rods, cold rolled steel, galvanized steel, automotive steel, stainless steel, and steelmaker.
On January 31, POSCO Holdings Inc. (NYSE:PKX) released its financial results for FY 2023. Its total revenue declined by 9% y-o-y to KRW 77.1 trillion, while net income shrunk 48% y-o-y to KRW 1.8 trillion.
As of Q4 2023, POSCO Holdings Inc. (NYSE:PKX) shares were held by 9 hedge funds with a total value of $13 million. Simon Sadler’s Segantii Capital was its largest hedge fund shareholder with ownership of 0.06 million shares valued at $5.5 million.
3. Ternium S.A. (NYSE:TX)
Average Analyst Rating: 1.55
Number of Hedge Fund Holders: 17
Ternium S.A. (NYSE:TX), based in Luxembourg, is a leading steel producer in Latin America with operating facilities in Mexico, Brazil, Argentina, Colombia, the southern United States and Central America.
In June 2023, Ternium S.A. (NYSE:TX) announced its intention to build and integrate its new steel slab mill at Pesquería, Nuevo León, Mexico, with construction expected to begin in December 2023. It expects to invest nearly $2.2 billion to construct an electric arc furnace-based steel shop with 2.6 million tons of annual capacity and a direct reduced iron with 2.1 million annual capacity. The facilities are expected to commence operations in H1 2026.
On November 20, BofA Securities upgraded Ternium S.A. (NYSE:TX) shares from ‘Neutral’ to ‘Buy’ rating with an unchanged price target of $47 per share which represents a potential upside of 18.03% based on the latest share price.
2. ArcelorMittal (NYSE:MT)
Average Analyst Rating: 1.53
Number of Hedge Fund Holders: 15
Luxembourg-based ArcelorMittal (NYSE:MT) is a leading steel and mining company with a presence in 60 countries and primary steelmaking facilities in 16 countries. The company produced 58.1 million metric tons of crude steel and 42.0 million metric tons of iron ore in 2023.
On February 8, ArcelorMittal (NYSE:MT) released its financial results for Q4 2023. It generated a revenue of $14.6 billion and a net loss of $3.0 billion. The Board of Directors of the company proposed to increase the annual base dividend to shareholders from $0.44 per share to $0.50, subject to the approval of shareholders.
ArcelorMittal (NYSE:MT) also reaffirmed its commitment to return a minimum 50% of post-dividend FCF to shareholders through its share buyback programs.
1. Worthington Steel, Inc. (NYSE:WS)
Average Analyst Rating: 1.00
Number of Hedge Fund Holders: 8
Based in Worthington, Ohio, Worthington Steel, Inc. (NYSE:WS) is a market-leading steel processor and producer of electrical steel laminations and automotive lightweighting solutions that partners with customers to deliver highly technical and customized solutions.
Worthington Steel, Inc. (NYSE:WS) was formed through a spin-off from Worthington Enterprises, Inc. (NYSE:WOR), formerly Worthington Industries, Inc., on December 1. The separation aims to promote a more focused strategic approach for both companies.
On December 4, KeyBanc analyst Philip Gibbs initiated coverage of Worthington Steel, Inc. (NYSE:WS) shares with an ‘Overweight’ rating and a price target of $29.
Worthington Steel, Inc. (NYSE:WS) is the best steel stock to buy according to analysts based on its average analyst ratings. The stock was owned by 8 prominent hedge funds as of December 31.
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Disclosure: None. 10 Best Steel Stocks to Buy According to Analysts is originally published on Insider Monkey.
