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The bullish run for steel stocks may be just getting started.
Some investors may feel conservative about investing in a stock that is trading near a 52-week high. Rather than viewing the price level as concerning, history has shown us that a stock hitting new 52-week highs is a telling sign of strength. Only the strongest stocks that are in the most powerful uptrends print fresh yearly highs, and many steel stocks are displaying that exact behavior at this very moment.
History has also illustrated countless times that stock trends tend to last longer than most investors realize – particularly strong uptrends breaking out to new highs. The VanEck Vectors Steel ETF (SLX - Free Report) has not only outperformed over the course of the past year (climbing nearly 11% versus a -0.94% loss for the S&P 500), it is also showing relative strength in 2022 as we can see below:
Image Source: StockCharts
The old market adage comes to mind – follow the trend until the end when it bends. There’s no sign that the uptrend in the VanEck Vectors Steel ETF is bending. SLX seeks to replicate the performance of the NYSE Arca Steel Index, which is intended to track the overall performance of the companies involved in the steel sector. This index has more than tripled in value from the March 2020 bottom. The stock we will discuss below constitutes 5.64% of the total SLX holdings.
The Zacks Steel – Pipe and Tube industry group has outpaced the market this year with a 24.9% return and is currently ranked in the top 1% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months.
Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. Also note the favorable characteristics for this group:
Image Source: Zacks Investment Research
This highly-rated industry also contains the stock we will analyze below. Let’s take a more in-depth look at this Zacks Rank #1 (Strong Buy) stock.
Tenaris is a leading global manufacturer and supplier of steel pipe products and associated services to the oil and gas, energy, and related industries. TS produces and sells seamless and welded steel tubular products such as steel casings, mechanical and structural pipes, premium joints and couplings, and subsea pipelines. Tenaris was incorporated in 2001 and is based in Luxembourg.
Tenaris has exceeded earnings estimates in each of the past seven quarters. The steel manufacturer most recently reported Q1 EPS last week of $0.85, a 25% surprise over the $0.68 consensus estimate. TS has posted a trailing four-quarter average earnings surprise of 62.85%, helping the stock advance nearly 45% in the past year.
Tenaris S.A. Price, Consensus and EPS Surprise
Despite the impressive performance, TS trades at a relatively undervalued 9.35 forward P/E compared to its industry group (16.23). Analysts have increased their full-year earnings estimates by 14.13% in the past 60 days. The 2022 Zacks Consensus EPS Estimate now stands at $3.23, reflecting potential growth of 72.73% relative to last year.
Keep an eye on TS as well as its industry group as the outperformance looks set to continue.
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Follow the Trend Until the End When It Bends
The bullish run for steel stocks may be just getting started.
Some investors may feel conservative about investing in a stock that is trading near a 52-week high. Rather than viewing the price level as concerning, history has shown us that a stock hitting new 52-week highs is a telling sign of strength. Only the strongest stocks that are in the most powerful uptrends print fresh yearly highs, and many steel stocks are displaying that exact behavior at this very moment.
History has also illustrated countless times that stock trends tend to last longer than most investors realize – particularly strong uptrends breaking out to new highs. The VanEck Vectors Steel ETF (SLX - Free Report) has not only outperformed over the course of the past year (climbing nearly 11% versus a -0.94% loss for the S&P 500), it is also showing relative strength in 2022 as we can see below:
Image Source: StockCharts
The old market adage comes to mind – follow the trend until the end when it bends. There’s no sign that the uptrend in the VanEck Vectors Steel ETF is bending. SLX seeks to replicate the performance of the NYSE Arca Steel Index, which is intended to track the overall performance of the companies involved in the steel sector. This index has more than tripled in value from the March 2020 bottom. The stock we will discuss below constitutes 5.64% of the total SLX holdings.
The Zacks Steel – Pipe and Tube industry group has outpaced the market this year with a 24.9% return and is currently ranked in the top 1% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months.
Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. Also note the favorable characteristics for this group:
Image Source: Zacks Investment Research
This highly-rated industry also contains the stock we will analyze below. Let’s take a more in-depth look at this Zacks Rank #1 (Strong Buy) stock.
Tenaris S.A. (TS - Free Report)
Tenaris is a leading global manufacturer and supplier of steel pipe products and associated services to the oil and gas, energy, and related industries. TS produces and sells seamless and welded steel tubular products such as steel casings, mechanical and structural pipes, premium joints and couplings, and subsea pipelines. Tenaris was incorporated in 2001 and is based in Luxembourg.
Tenaris has exceeded earnings estimates in each of the past seven quarters. The steel manufacturer most recently reported Q1 EPS last week of $0.85, a 25% surprise over the $0.68 consensus estimate. TS has posted a trailing four-quarter average earnings surprise of 62.85%, helping the stock advance nearly 45% in the past year.
Tenaris S.A. Price, Consensus and EPS Surprise
Despite the impressive performance, TS trades at a relatively undervalued 9.35 forward P/E compared to its industry group (16.23). Analysts have increased their full-year earnings estimates by 14.13% in the past 60 days. The 2022 Zacks Consensus EPS Estimate now stands at $3.23, reflecting potential growth of 72.73% relative to last year.
Keep an eye on TS as well as its industry group as the outperformance looks set to continue.