10 Best Steel Stocks to Invest In

Published on July 23, 2023 at 3:51 pm by Muhammad Jamal Akbar in Hedge Funds, Lists

In this article, we will take a look at the 10 best steel stocks to invest in.

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.

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.

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. 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.

China is the largest producer as well as consumer of steel globally. It is home to 11 of the top 20 steel companies in the world with industry bigwigs such as China Baowu Group, Ansteel Group, and Shagang Group, among others. Some of the other major steel producing companies include ArcelorMittal S.A. (NYSE:MT), Nucor Corporation (NYSE:NUE), and POSCO Holdings Inc (NYSE:PKX), among others. You can read more about the leading steel producing companies and countries in our recent articles: Top 20 Steel Companies In World, and 15 Largest Steel Producing Countries in the World.

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Methodology

We used stock screeners to identify the companies that operate in the steel industry and shortlisted the stocks with growth catalysts, strong fundamentals, and positive market sentiment. The final step involved the ranking of the identified list of stocks based on their popularity among the top hedge funds tracked by Insider Monkey.

10 Best Steel Stocks to Invest In

10. Ternium S.A. (NYSE:TX)

Number of Hedge Fund Holders: 12

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.

On June 20, Ternium S.A. (NYSE:TX) announced that it intends 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 July 3, Ternium S.A. (NYSE:TX) announced the acquisition of additional 57.7 million ordinary shares of Brazilian steel manufacturer Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, for $119 million which brings its stake in the control group of the company to 51.5%.

As of March 31, Ternium S.A. (NYSE:TX) shares were held by 12 hedge funds out of the 943 prominent hedge funds tracked by Insider Monkey. Jon Bauer’s Contrarian Capital was its largest hedge fund shareholder with ownership of 1.1 million shares valued at $45million.

9. Gerdau S.A. (NYSE:GGB)

Number of Hedge Fund Holders: 14

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. It has an installed annual capacity to produce 26 million tons of steel and provides steel for a variety of uses. 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. Its recent dividend payouts suggest annual dividend payouts of $0.68 per share which represents a dividend yield of 12.1% based on the share price on July 14.

As of Q1 2023, Gerdau S.A. (NYSE:GGB) shares were owned by 14 hedge funds with a total value of $214 million. Jon Bauer’s Contrarian Capital was the largest hedge fund shareholder with ownership of 18 million shares valued at $89 million.

8. ArcelorMittal (NYSE:MT)

Number of Hedge Fund Holders: 19

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 59.0 million metric tons of crude steel and 45.3 million metric tons of iron ore in 2022.

On May 4, ArcelorMittal (NYSE:MT) released its financial results for Q1 2023. It generated a revenue of $18.5 billion and a net income of $1.1 billion. EPS at $1.28 exceeded the consensus estimates by $0.61.

ArcelorMittal (NYSE:MT) also announced its intention to repurchase up to 85 million of its shares through May 2025, and declared a $0.44 per share base dividend to be paid in two equal installments in June and December 2023.

7. Commercial Metals Company (NYSE:CMC)

Number of Hedge Fund Holders: 22

Commercial Metals Company (NYSE:CMC), based in Irving, Texas, is a steel company that manufactures, recycles, and fabricate steel and metal products and provides related materials and services. Its network comprises of 7 electric arc furnace (EAF) mini mills, 3 EAF micro mills, one rerolling mill, steel fabrication and processing plants, and metal recycling facilities in the United States and Poland.

On July 13, Commercial Metals Company (NYSE:CMC) announced the acquisition of EDSCO Fasteners LLC, a leading provider of anchoring solutions for the electrical transmission market, without disclosing the financial terms of the transaction. The acquisition is expected to support the company’s position in the construction reinforcement market.

On July 11, UBS analyst Cleve Rueckert initiated coverage of Commercial Metals Company (NYSE:CMC) shares with a ‘Buy’ rating and a price target of $63.00. This represents a potential upside of 14% based on the share price on July 14.

As of Q1 2023, Bruce Berkowitz’s Fairholme (FAIRX) was the largest hedge fund shareholder of Commercial Metals Company (NYSE:CMC) with ownership of 1.3 million shares valued at $62 million.

6. United States Steel Corporation (NYSE:X)

Number of Hedge Fund Holders: 30

Founded in 1901, Pittsburgh, Pennsylvania-based United States Steel Corporation (NYSE:X) is a leading steel producer with an annual raw steelmaking capability of 22.4 million net tons. The company also maintains competitive advantage in iron ore production and has operations in the United States and in Central Europe.

On June 19, United States Steel Corporation (NYSE:X) provided guidance for its Q2 2023 financial results which are expected to be released on July 28. It expects an adjusted EBITDA of $775 million for the quarter with adjusted EPS of $1.81 to $1.86.

In addition, the company expects to repurchase $75 million of common stock during the quarter under its $500 share repurchase program which would bring the total amount returned to shareholders through repurchases since December 2021 to more than $1.1 billion.

According to the Insider Monkey data on 943 leading hedge funds, 30 hedge funds were long United States Steel Corporation (NYSE:X) shares as of Q1 2023, with the total shares held by hedge funds valued at $833 million.

5. Algoma Steel Group Inc. (NASDAQ:ASTL)

Number of Hedge Fund Holders: 31

Ontario, Canada-based Algoma Steel Group Inc. (NASDAQ:ASTL) is a steel production company with an expertise in the production of hot and cold rolled steel sheet and plate products with a raw steel production capacity of nearly 2.8 million tons per year.

On June 21, Algoma Steel Group Inc. (NASDAQ:ASTL) released its financial results for the quarter ended March 31. It generated a revenue of C$677 million and a net loss of C$20 million. The company paid a quarterly dividend of C$0.05 per share during the quarter.

Algoma Steel Group Inc. (NASDAQ:ASTL) has the highest upside potential based on the average analyst target price of $12.40 which is 68.48% more than the share price on July 14.

4. Reliance Steel & Aluminum Co. (NYSE:RS)

Number of Hedge Fund Holders: 31

Scottsdale, Arizona-based Reliance Steel & Aluminum Co. (NYSE:RS) is a leading diversified metals solutions provider with a network of more than 300 locations across 40 states and 12 countries outside United States. 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 Steel & Aluminum Co. (NYSE:RS) has grown rapidly with intermittent acquisitions to bolster its product offerings and to expand its network. On May 1, the company announced that it had acquired Southern Steel Supply, LLC, a metals service center that supplies customers throughout Tennessee, Mississippi, Arkansas, Alabama, and Missouri. The target company generated FY 2022 net sales of $63 million.

On April 27, Reliance Steel & Aluminum Co. (NYSE:RS) released its financial results for Q1 2023. It generated a revenue of $4.0 billion and net income of $383 million. Its EPS for the quarter was $6.43, which exceeded consensus estimates by $0.81.

3. Steel Dynamics, Inc. (NASDAQ:STLD)

Number of Hedge Fund Holders: 33

Steel Dynamics, Inc. (NASDAQ:STLD) is one of the largest domestic steel producers and metals recyclers in the United States with facilities located throughout the United States, and in Mexico. It produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality steel, and cold finished steel, among others.

Steel Dynamics, Inc. (NASDAQ:STLD) has paid regular quarterly cash dividends for more than a decade. During the last 10 years, its dividend payouts have grown at a CAGR of 14.47% and the company currently pays a quarterly cash dividend of $0.425 per common share.

As of Q1 2023, Steel Dynamics, Inc. (NASDAQ:STLD) shares were held by 33 hedge funds with a total value of $304 million. Cliff Asness’ AQR Capital Management was its largest hedge fund shareholder with ownership of 1.3 million shares valued at $142 million.

2. Cleveland-Cliffs Inc. (NYSE:CLF)

Number of Hedge Fund Holders: 34

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.

The management Cleveland-Cliffs Inc. (NYSE:CLF) has been making efforts to improve the financial position of the company as well as increase profitability. The company has managed to reduce its net debt and post-retirement liabilities by nearly 45% in the last 2 years.

On the profitability front, the steelmaking COGS has been reduced by $140 per ton while fixed-price auto contracts, which account for a significant portion of the company’s revenue, have been revised up by $115 per ton.

Cleveland-Cliffs Inc. (NYSE:CLF) is the second best steel stock to invest in based on hedge fund sentiment as 34 hedge funds held its shares with a total value of $379 million, as of Q1 2023. Ken Fisher’s Fisher Asset Management was the largest hedge fund shareholder with ownership of 8.2 million shares valued at $149 million.

1. Nucor Corporation (NYSE:NUE)

Number of Hedge Fund Holders: 39

Based in Charlotte, North Carolina, Nucor Corporation (NYSE:NUE) is a leading steel producer with more than 300 operating facilities primarily in North America. It operates 24 scrap-based steel mills that have an annual production capacity of more than 27 million tons per year. The company also processes nearly 20 million tons of ferrous scrap per year to produce new steel.

On June 15, Nucor Corporation (NYSE:NUE) provided guidance for its Q2 2023 financial results. The company expects earnings per share to be in the range of $5.45 to $5.55 per diluted share, as compared to the consensus estimate of $5.43 per share.

On July 5, Exane BNP Paribas analyst Seth Rosenfeld upgraded the rating on Nucor Corporation (NYSE:NUE) shares to ‘Outperform’ from ‘Neutral’ with a price target of $191. The target price represents a potential upside of 14.53% based on the share price on July 14.

Nucor Corporation (NYSE:NUE) is the best steel stock to invest in according to the number of hedge funds that held its shares as of March 31, 2023. The stock was owned by 39 prominent hedge funds out of the 943 tracked by Insider Monkey, with a total value of $440 million. Citadel Investment Group, Marshall Wace LLP, and AQR Capital Management were the top 3 hedge fund shareholders of the stock.

10 Best Steel Stocks to Invest In

Published on July 23, 2023 at 3:51 pm by Muhammad Jamal Akbar in Hedge Funds, Lists