Five Steel Stocks to Buy Now

Are steel stocks a good investment? With the Trump administration having recently imposed tariffs on imported steel from several major producers like China and Brazil, it looks like US steel companies will see more revenue, although there are still many details regarding the tariffs to get a whole picture regarding the US domestic steel production.

The global steel market has been growing lately, with 2017 nominal and underlying growth at 7% and 2.8%, respectively, to 1.62 billion tonnes. In 2018, the demand is expected to grow further to 1.65 billion tonnes, but many analysts point out to a slowdown as China slows down on infrastructure spending. Moreover, there is the argument that tariffs will increase prices and led to companies to seek substitutes and, even though, the Trump administration has promised a $1.5 trillion infrastructure spending plan, the tariffs might impede the progress of some of the projects as they become too expensive.

Moreover, steel is a very capital intensive business, which often struggles to generate sustainable long-term returns, even though US steel makers are expected to benefit from higher prices this year, on the back of tariffs and a sharp drop in steel production in China (last year, China shut down many steel mills to cut pollution). However, there is still a lot of uncertainty regarding the long-term performance of US steel stocks.

Nevertheless, if one is considering to invest in steel stocks, then a good place to start is to look at where hedge funds invest. Hedge funds usually buy stocks with a long-term horizon in mind and do a lot of research to identify the best stocks from a particular industry. We can’t know for sure the reason why one hedge fund invests in a particular stock, but we can get a general idea if we look at the overall hedge fund sentiment.

At Insider Monkey, we follow over 600 hedge funds and other institutional investors and analyze their quarterly 13F filings to determine their collective sentiment towards nearly 4,000 companies. We use this data to identify the best small-cap stocks to include in our small-cap strategy, which we share in our premium quarterly newsletters. In addition, we have a monthly newsletter that focuses on activist funds and the best ways to imitate them. However, we can also see the hedge fund sentiment towards other companies in various other industries, such as steel.

When it comes to the hedge fund sentiment towards the steel industry, we see that smart money are not particularly fond of it. The most popular steel stock among hedge funds ranks on the 285th spot in our ranking. However, during the last three months of 2017, many steel stocks saw an increase in the number of bullish investors and in this article we are going to discuss five steel companies that saw the largest increase in popularity.

Commercial Metals Company (NYSE:CMC) saw the number of bullish investors go up by six both over the quarter and over the year to 20. The company has recently declared a $0.12 quarterly dividend, which gives its stock a yield of 2.05%. Commercial Metals Company (NYSE:CMC)’s stock is up by 28% over the last three months, amid the company registering increasing double-digits quarterly revenue growth in the last four quarters, reversing from the previous declines. For the fiscal first quarter, Commercial Metals Company (NYSE:CMC) posted EPS of $0.30, better than the expected $0.17, while its revenue went up by 25% on the year to $1.24 billion and topped the consensus by $130 million. For the current quarter, the company expects to see growrth in end markets among non-residential construction and OEMs. In addition, Commercial Metals Company (NYSE:CMC) said it plans to buy Gerdau’s US steel rebar assets for $600 million, in a move that would help it reduce pricing pressure on rebar.

 

In Allegheny Technologies Incorporated (NYSE:ATI), there were 28 funds holding shares at the end of 2017, compared to 23 funds a quarter earlier. In addition, Allegheny registered the largest year-on-year increase in the number of bullish investors, as there were 13 funds long the stock at the end of 2016. At the beginning of March, analysts at Bank of America Merrill Lynch and KeyBanc upgraded Allegheny Technologies Incorporated (NYSE:ATI)’s stock to ‘Buy’ and ‘Overweight’ from ‘Neutral’ and ‘Sector Weight’, respectively. BofA Merrill Lynch analysts, which have a $32 price target on the stock, said that the sell-off that the stock had registered presented a good entry point, given the company’s expected benefits from the new technology cycle in jet engines. KeyBanc has a $31 target on the stock and the analysts are bullish on the company due to the margin improvement potential in the flat-rolled steel segment and 2019 sum-of-parts valuation analysis, which shows an eventual share value above $35.

 

There were 33 investors tracked by Insider Monkey long Nucor Corporation (NYSE:NUE) heading into 2018, versus 27 funds a quarter earlier and 30 funds at the end of 2016. Recently, Nucor Corporation (NYSE:NUE) has updated its first-quarter earnings guidance. The company now expects EPS between $1.07 and $1.12, versus a consensus estimate of $1.01. Nucor Corporation (NYSE:NUE) sees more upside in steel mill products to continue into the second quarter. It also has announced plans to build a $240 million rebar micro mill in Frostproof, Florida, the second micro mill Nucor is building.

 

Even though United States Steel Corporation (NYSE:X) saw the number of investors holding shares decline by one to 34 during the last year, during the fourth quarter, that figure appreciated by four funds. Last week, United States Steel Corporation (NYSE:X)’s stock plunged after the company said that it is expecting fiscal 2018 EBITDA of $1.70 billion, up from the previous $1.50 billion, citing potential market conditions from Section 232 actions (Section 232 of the Trade Expansion Act of 1952 allow the executive branch to determine the effects on the national security of imports) and increased shipments from Granite City Works plant of around 100,000 tons per month. However, the market was not impressed with the guidance and sent the stock lower, although some analysts consider that the sell-off was an overreaction and that the drop created a good entry point.

 

Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular steel company among the investors in our database. At the end of 2017, there were 36 hedge funds holding shares of the company, up by nine over the quarter, but lower than 42 funds that had held shares a year earlier. Steel Dynamics, Inc. (NASDAQ:STLD)’s shares have appreciated by 31% over the last 12 months on the back of strong financial results with EPS and revenue either in-line or topping estimates. Last week, Steel Dynamics, Inc. (NASDAQ:STLD) provided first-quarter guidance below the consensus. The company said it expects EPS between $0.88 and $0.92, versus expectations of $0.94, but the results are still above the last-year figure of $0.82. Steel Dynamics, Inc. (NASDAQ:STLD) is also optimistic that strong steel demand fundamentals will continue throughout 2018.

 

Disclosure: none