The steel industry received a setback as China, one of the world’s largest steel exporters, announced recently that  it is cutting back on steel production to reduce carbon emissions. However, steel prices have soared this year and could continue to rise in the coming months as the demand for raw materials increases and supply constraints remain.

As the economy reopens and construction activities continue to rise, the demand for steel is expected to increase steadily. According to a MetalMiner report, the World Steel Association expects steel demand to increase by 4.5% this year.

So, we think it could be wise to bet on quality steel stocks ArcelorMittal (MT) and Reliance Steel & Aluminum Co. (RS), both of which analysts have recently upgraded.

ArcelorMittal (MT)

MT, together with its subsidiaries, owns and operates steel manufacturing and mining facilities across the globe. The Luxembourg-based company also mines for iron ore in several countries. Credit Suisse has recently upgraded the stock’s rating to ‘Outperform,’ raising its price target to $42.

On September 20, 2021, MT announced its partnership with Breakthrough Energy’s Catalyst program, committing to an equity investment of $100 million over the next five years. Aditya Mittal, the company’s CEO, said, “The Catalyst program is innovative and necessary. It brings together public and private finance with the objective of fast-tracking the deployment of projects which can deliver significant carbon reduction. For ArcelorMittal and the steel industry this kind of initiative is critically important.”

MT’s sales increased 76.2% year-over-year to $19.34 billion in the second quarter, ended June 30, 2021. Its income from operations came in at $4.43 billion compared to a $253 million loss in the year-ago period. While its net income was $4 billion compared to a $559 million loss, its EPS was $3.46 compared to a $0.50 loss per share in the previous period.

Analysts expect MT’s revenue and EPS to increase 46.4% and 1815.6%, respectively, year-over-year to $78 billion and $13.21in its fiscal year 2021. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 35.5% in price to close yesterday’s trading session at $32.46.

MT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

MT has an A grade for Growth, Value, and Momentum, and a B grade for Sentiment and Quality. Within the Steel industry, it is ranked #5 out of 32 stocks. Click here to see the additional POWR Rating for Momentum for MT.

Note that MT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Reliance Steel & Aluminum Co. (RS)

RS is a metals service center company that operates approximately 300 metals service centers. The Los Angeles company provides specialty steel products and processing services to general manufacturing, non-residential construction, and others. Keybanc has recently upgraded the stock’s rating to ‘Overweight,’ raising its price target to $165.

On October 4, RS announced its acquisition of Merfish United, a leading master distributor of tubular building products in the United States. Jim Hoffman, the company’s CEO, said, “This transaction aligns with our acquisition strategy of expanding our product, end market, and geographical diversification and acquiring immediately accretive companies with strong management teams.”

RS’ net sales increased 69.3% year-over-year to $3.42 billion for the second quarter, ended June 30, 2021. Its operating income increased 288.2% year-over-year to $460.40 million. Also, its net income increased 310.3% year-over-year to $329.10 million, while its non-GAAP EPS came in at $5.08, representing a 309.7% year-over-year rise.

For its fiscal year 2021, RS’ revenue and EPS are expected to grow 52.3% and 155.6%, respectively, year-over-year to $13.42 billion and $19.71 In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 16.4% in price to close yesterday’s trading session at $148.57.

RS’ strong fundamentals are reflected in its POWR ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.

In addition, it has an A grade for Momentum, and a B grade for Growth, Sentiment, and Quality. RS is ranked #8 in the Steel  industry. Click here to see the additional POWR Ratings for RS (Value and Stability).

MT shares were trading at $32.34 per share on Tuesday afternoon, down $0.12 (-0.37%). Year-to-date, MT has gained 42.34%, versus a 21.62% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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