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We recently upgraded our recommendation on Companhia Siderurgica Nacional (SID - Analyst Report), or CSN from Neutral to Outperform.

Why the Upgrade?

The upgrade is the result of both growth prospects of the worldwide steel industry as well as that of SID. Instabilities in the U.S. and the Eurozone are abating while China has recently shown solid signs of growth. All these have increased demand for better infrastructure and modernized farming techniques and thus for steel. According to the World Steel Association, estimated global consumption of steel is likely to grow 2.9% in 2013 and 3.2% in 2014.

Talking of the Brazilian steel industry, demand is on the rise as the country prepares to host major sporting events in 2014 and 2016 while major investments in infrastructures are also planned for the development of ports, railroads, airports, wind farms and roads, among others. According to the Brazilian Steel Institute (IABr), crude steel production is likely to increase 5.8% in 2013 coupled with steel sales which are expected to rise by 7.6% in the year.

To cope with the anticipated rise in steel demand, the company has made investments to improve its production capacity of steel. Besides steel, SID’s exposure to iron ore mining, cement, and infrastructure projects makes it an attractive stock to own.

Talking of SID’s financial background, the company reported impressive second quarter 2013 results with an earnings surprise of 433.3%. Average earnings surprise of the trailing four quarters is 183.3%. Additionally, we have an Earnings ESP of 360% for 2013 and 160% for 2014. In the last 30 days, the Zacks Consensus Estimate for SID has gone up from loss per share of 6 cents to earnings per share of 5 cents for 2013 and increased by 400% for 2014.

Others Stocks to Consider:

SID, a well known Brazilian steel maker, currently has a market capitalization of roughly $6.4 billion. Other stocks to watch out for in the industry are Nippon Steel & Sumitomo Metal Corporation and Shiloh Industries Inc. , each with a Zacks Rank #1 (Strong Buy) while Gerdau S.A. (GGB - Analyst Report) carries a Zacks Rank #2 (Buy).

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