The steel industry has been under immense pressure lately due to reduced demand and logistical disruptions. China's strict lockdown measures have reduced steel consumption and industrial production, while the Russia-Ukraine war has aggravated supply chain disruptions. These factors have led to a drastic dip in steel prices. The Raw Steels Monthly Metals Index (MMI) plunged 8.9% from April to May.
But amid the broad market sell-offs, various buy-the-dip opportunities have been created for investors. With rebounding demand in the manufacturing and construction sectors and increasing investments in the infrastructure sector, the steel industry has promising growth prospects over the long run.
Nucor Corporation (NUE)
NUE in Charlotte, N.C., manufactures and sells steel and steel products. The company operates through three segments: Steel Mills; Steel Products; and Raw Materials. Its Steel Mills segment produces hot-rolled, cold-rolled, sheet piling, plate steel, and bar steel products. Its Steel Products segment provides hollow structural section steel tubing products, cold finished steel products, and wire and wire mesh products. Its Raw Materials segment produces direct reduced iron (DRI) and brokers ferrous and nonferrous metals.
Last month, NUE acquired Elite Storage Solutions, a steel racking manufacturer, for $75 million. “We are excited to grow our steel racking capabilities with this acquisition of Elite Storage Solutions. Establishing a manufacturing presence in the Southeast complements our existing steel racking business and allows us to serve our racking customers nationwide more efficiently,” said Giff Daughtridge, President of Sheet and Tubular Products.
In February, NUE acquired a majority ownership position in California Steel Industries, Inc. by purchasing a 50% equity interest from a subsidiary of Vale S.A. and a 1% equity ownership stake from JFR Steel Corporation. This joint venture is expected to give NUE a strong presence in the Western region and accelerate its ability to produce a wider range of value-added sheet products.
In its fiscal year 2022 first quarter, ended April 2, 2022, NUE's net sales increased 49.5% year-over-year to $10.49 billion. Its earnings before income taxes and noncontrolling interests grew 123.2% year-over-year to $2.80 billion. The company's net earnings rose 125.5% year-over-year to $2.23 billion. Its net earnings attributable to NUE stockholders and net earnings per share came in at $2.10 billion and $7.67, respectively, registering an increase of 122.4% and 147.4% from the prior-year period.
Analysts expect NUE’s EPS to grow 61.1% year-over-year to $8.34 for its fiscal 2022 second quarter, ending June 30, 2022. It is no surprise that it has surpassed the consensus EPS estimates in three of the trailing four quarters. The $11.79 billion consensus revenue estimate for the current quarter represents a 34.1% rise from the prior-year period.
The stock has plunged 25% in price over the past month and closed yesterday's trading session at $125.07.
NUE's POWR Ratings reflect this promising outlook. It has an overall grade of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
NUE has a B grade for Growth and Quality. Within the A-rated Steel industry, it is ranked #11 of 33 stocks. To see additional POWR Ratings (Value, Momentum, Stability, and Sentiment) for NUE, click here.
United States Steel Corporation (X)
Pittsburgh, Pa.-based X manufactures and sells flat-rolled and tubular steel products in North America and Europe. The company operates through four segments: North American Flat-Rolled (Flat-Rolled); Mini Mill; U.S. Steel Europe (USSE); and Tubular Products (Tubular). It provides strip mill plates, tin mill products, iron ore, and coke. In addition, it offers hot-rolled, cold-rolled, coated sheets and electrical products, electric resistance welded sheet casting and tubing products, and line pipe and mechanical tubing products.
On Feb.28, X advanced its metallics strategy with pig iron investment at Gary Works. The $60 million investment might produce up to $500,000 tons of pig iron annually and provide a critical raw material input for its electric arc furnaces (EAF). X’s low-cost iron ore is a significant strategic advantage. Further, an investment in pig iron is expected to transfer the company’s low-cost iron ore advantage to its EAF footprint and accelerate growth.
In January, X and Carnegie Foundry, a leading robotics and AI studio agreed to a strategic investment and partnership. The two companies will work to accelerate industrial automation driven by advanced robotics and AI. With this partnership, X might fulfill its customers’ needs for a resilient and efficient supply chain by introducing highly advanced technologies.
X's net sales increased 42.8% year-over-year to $5.23 billion in its fiscal 2022 first quarter, ended March 31, 2022. Its earnings before income taxes rose 1,126.1% year-over-year to $1.12 billion. Its adjusted EBITDA grew 142.6% from its year-ago value to $1.34 billion. The company’s adjusted earnings and net earnings per share attributable to X were $891 million and $3.05, respectively, registering an increase of 214.8% and 182.4% year-over-year.
Analysts expect X's revenue for its fiscal 2022 second quarter, ending June 30, 2022, to be $6 billion, representing a 19.4% rise from the same period in 2021. The Street expects the company's EPS for the current quarter to come in at $3.49, representing a 3.5% increase year-over-year. Also, the company has an impressive revenue and earnings history because it has topped the consensus revenue and EPS estimates in three of the trailing four quarters.
Shares of X have decreased 30.9% over the past month and closed yesterday's trading session at $25.23.
X's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B grade, which translates to Buy in our proprietary rating system.
X has an A grade for Value and a B grade for Quality. Within the Steel industry, it is ranked #18 of 33 stocks. To see additional POWR Ratings (Momentum, Sentiment, Stability, and Growth) for X, click here.
NUE shares were trading at $121.30 per share on Wednesday afternoon, down $3.77 (-3.01%). Year-to-date, NUE has gained 6.62%, versus a -16.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.2 Steel Stocks to Buy on the Dip: Nucor and United States Steel appeared first on StockNews.com