Concerns over piling up steel inventories in China and cooling prices led to a negative impact on the steel industry over the past few months. However, the resumption of operations across major steel-consuming sectors, such as construction and automotive, will likely boost the steel industry.
The prospects of leniency in China’s Zero-COVID policy after the upliftment of lockdowns might also help increase the demand if China’s industrial output picks up.
Despite the rising commodity and energy prices in Europe due to the Russian invasion of Ukraine, steel companies have been able to protect their margins by passing on these rising costs to customers through increased prices. Steel makers are also benefiting from a resilient non-residential construction market.
According to the World Steel Association forecasts, steel demand is expected to edge up 0.4% in 2022 to 1.84 billion MT and grow a further 2.2% in 2023 to 1.88 billion MT.
Given this favorable industry backdrop, we think of investing in quality steel stocks Nucor Corporation (NUE), United States Steel Corporation (X), and Reliance Steel & Aluminum Co. (RS) could help strengthen your portfolio in the long run.
Nucor Corporation (NUE)
NUE manufactures and sells steel and steel products through three segments: Steel Mills, Steel Products, and Raw Materials. It produces carbon and alloy steel, hollow structural section tubing, electrical conduit, steel racking, steel deck, cold finished steel, steel fasteners, insulated metal panels, and others.
On June 24, 2022, NUE acquired C.H.I. Overhead Doors (C.H.I.) from KKR & Co. Inc. (KKR) for $3 billion. This acquisition expands the company’s business and might enhance its manufacturing model.
NUE’s net sales increased 49.5% year-over-year to $10.49 billion for the first quarter ended April 2, 2022. The company’s net earnings increased 125.5% year-over-year to $2.22 billion. Also, its EPS came in at $7.67, representing an increase of 147.4% year-over-year.
Analysts expect NUE’s EPS and revenue for the second quarter (ended June 2022) to increase 66% and 31% to $8.60 and $11.51 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 14% to close the last trading session at $108.37.
NUE’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. It is ranked #17 out of 32 stocks in the A-rated Steel industry. Click here to see the other ratings of NUE for Value, Momentum, Stability, and Sentiment.
United States Steel Corporation (X)
X is a leading steel producer operating through four segments: North American Flat-Rolled, Mini Mill; U.S. Steel Europe (USSE); and Tubular Products (Tubular). It also engages in the real estate business and serves customers in automotive, construction, consumer, electrical, industrial equipment, distribution, and energy markets.
On June 28, 2022, it announced plans to expand its low-cost iron ore competitive advantage and increase its self-sufficiency by supplying domestic feedstock to its growing fleet of electric arc furnaces. By upgrading iron ore capabilities in Minnesota and repurposing blast furnaces at Granite City Works in Illinois with SunCoke Energy, the company aims to expand its domestic, low-cost iron ore advantage.
X’s net sales increased 42.8% year-over-year to $5.23 billion in the first quarter ended March 31, 2022. Its adjusted net earnings increased 214.8% from the year-ago value to $891 million, while its adjusted EBITDA grew 142.6% year-over-year to $1.34 billion. X’s adjusted EPS rose 182.4% from the prior-year quarter to $3.05.
The consensus EPS estimate of $3.85 for the fiscal second quarter (ended June 2022) represents a 14.3% improvement year-over-year. The consensus revenue estimate of $5.81billion for the about-to-be-reported quarter represents a 15.5% increase from the same period last year. It surpassed consensus EPS estimates in three of the trailing four quarters.
Shares of X lost 15.1% over the past month to close the last trading session at $17.34.
X has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Value and a B grade for Quality. Also, it is ranked #22 in the Steel industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the X’s ratings for Growth, Momentum, Stability, and Sentiment here.
Reliance Steel & Aluminum Co. (RS)
RS is a metals service center company that operates as a metal solutions provider to various industries. It provides value-added metal processing services and distributes metal products, such as alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium, and specialty steel products.
RS’ net sales increased 58% year-over-year to $4.49 billion for the first quarter ended March 31, 2022. The company’s gross profit increased 45.4% year-over-year to $1.39 billion. Also, the non-GAAP net income attributable to Reliance came in at $528.70 million, up 99.1% from the year-ago period, while its non-GAAP EPS rose 105.4% year-over-year to $8.42.
Analysts expect RS’ EPS and revenue for the quarter ending June 30, 2022, to increase 77.8% and 34.7% year-over-year to $9 and $4.60 billion, respectively. The stock has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 19.4% to close the last trading session at $174.69.
RS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
RS has a B grade for Growth, Sentiment, and Quality. Again, in the same industry, it is ranked #11. Click here to see the other ratings of RS for Value, Momentum, and Stability.
NUE shares were trading at $109.86 per share on Friday afternoon, up $1.49 (+1.37%). Year-to-date, NUE has declined -2.99%, versus a -18.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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