For immediate release
Chicago, IL – June 14, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: Olympic Steel ZEUS, Steel Dynamics STLD, Ternium’s TX, Nucor NUE and ArcelorMittal MT.
Here are the highlights from Monday’s analyst blog:
5 steel stocks to harness the strength of the underlayment
Steel is central to any economy due to its consumption in a wide range of industries and its end use in virtually every industry. The overall development of a country is linked to the amount of steel it consumes. In fact, in the digital age, when semiconductors have assumed a central role, many industry players have referred to semiconductor production facilities as the steel mills of the future.
But although it has wide application in all industries, the areas that use steel the most are still construction, transportation (including light vehicles, trucks, and other forms), machinery and tools, and defense.
Commodity prices have been on a rollercoaster ride lately as virtually any number of things that have caused disruption in the broader market have also impacted it. So, initially, due to supply chain constraints, it encountered raw material supply issues which impacted supply, which drove prices up. This was followed by the war in Ukraine with the resulting pressure on pig iron supplies, with continued price strength.
The peak was in early May and prices have been falling ever since. But they are roughly where they were at the same time last year, which is a higher level than in 2019 and 2020 according to data from Trading Economics. And there are other reasons to be optimistic:
The main consumers of steel are the construction and transport industries, followed by machinery/tools, energy, defence, packaging, medical equipment and others.
So first, it should be remembered that construction demand remains strong. While the production of new homes is limited by the supply chain as well as the workforce, the situation has improved compared to before. There is a huge underlying demand for affordable housing, although the various drivers of this market have yet to emerge.
Prices need to come down a lot, because rising interest rates push up mortgage rates, which, in turn, drives up the total cost of owning a home. And prices won’t drop until home inventory increases noticeably.
Builders build whatever they can. Non-residential construction also remains robust, with President Biden commemorating the sixth anniversary of legislation passed to rebuild public infrastructure last month. The government has disbursed $110 billion under the law for 4,300 specific projects identified for funding. These developments are very positive for raw material suppliers, including steel producers.
Second, the evolution of the transport market is both good and bad. On the bright side, despite huge demand for light vehicles, the semiconductor shortage that has plagued the auto industry is not expected to normalize this year, meaning auto sales could be subdued despite strong demand.
But once the chips become available again as expected in the second half of the year, production should rebound, which should also boost sales for steel companies. On the negative side, trucking capacity additions are expected to slow this year as supply chain issues ease and demand softens in response to rate increases.
Third, machinery and tools remain in demand as manufacturing and agricultural production remain strong. The latest ISM report is a good indication of the health of the manufacturing segment. The USDA also provided an optimistic outlook for agricultural production due to strong demand and prices resulting from shortages created by the war in Ukraine, as well as the supply agreement with China.
Fourth, China is responsible for about half of the world’s steel production and also its consumption. As a result, slowing growth and pandemic-related shutdowns in China are disrupting the rest of the world. But China is also cutting production in line with its carbon dioxide emissions targets, which is a positive. After cutting 30 million tonnes in 2021, it expects a further reduction this year. Production in the first quarter was already 10.5% lower than the previous year.
Given the above and the fact that steelmaking stocks are currently very cheap, this could be a good time to build exposure:
Olympic steel is a #1 (Strong Buy) rated title by Zacks. Analysts are extremely bullish on this stock, as they have raised their 2022 estimates by an average of $4.07 (up 110%) over the past 60 days. The Zacks consensus estimate for 2023 is also up $4.81 (178%).
Another that looks good at this point is ranked #1 steel dynamics, which has seen its 2022 EPS estimate jump $5.23 (32%) in the past 60 days. The 2023 estimate is up $3.66 (41%).
#1 ranked by Ternium The 2022 estimate is up $4.26 (47%) while its 2023 estimate is up $1.32 (19%).
Nucor also has a Zacks rank of No. 1. Estimates for this stock are up sharply from 60 days ago. The 2022 estimate increased by $9.51 (473%) while the 2023 estimate increased by $7.52 (113%).
ArcelorMittal saw a similar trend. The #1 ranked company has seen its estimates for 2022 and 2023 increase by $3.07 (30%) and $2.80 (43%), respectively, in the past 60 days.
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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.
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Steel Dynamics, Inc. (STLD): Free Stock Analysis Report
ArcelorMittal (MT): Free Inventory Analysis Report
Nucor Corporation (NUE): Free Inventory Analysis Report
Ternium SA (TX): Free Stock Analysis Report
Olympic Steel, Inc. (ZEUS): Free Stock Analysis Report
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