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A Few Steely Ideas for 2017

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The recent reputation for the steel industry was anything but strong, but that started to change in 2016 and looks to continue in 2017. The steel – producers space entered this year in the top 7% of the Zacks Industry Rank, placing 19th out of 265 industries! It also has five representatives in the Zacks Rank #1 (Strong Buy) List.

According to a recent Financial Times survey, crude steel output is expected to increase 4.4% this year, which would reverse two years of contraction. Yes, you can credit a good amount of this optimism to the election of Donald Trump, who has promised big infrastructure spending and “better” trade deals. However, steel prices had been improving even before his election. Can this space continue to improve even after the runup of late?

Several analysts seem to think so. Earnings estimates for steel companies have risen sharply in the past 30 to 60 days. In fact, the Zacks Rank #1 (Strong Buy) List added two more stocks from the steel – producers space just this morning. Here are a few steel producers to keep an eye on:

A Few Steely Picks for 2017

Is there a better way to start off the New Year than by reaching Zacks Rank #1 (Strong Buy) status? U.S. Steel (X - Free Report) made the list on January 3rd after soaring by nearly 350% in 2016. Nearly 70% of that ascent came since Donald Trump’s election. This approximately $35 stock is nearing its 52-week high at a little over $39 and seems to have plenty of momentum to breakthrough the mark. It has a Zacks Style Score of "A" for Momentum and Growth, as well as a Zacks VGM Score of "B". Given how closely it’s tied to steel prices, X’s earnings picture is a bit erratic, but the important thing to know is that the Zacks Consensus Estimate for 2017 has jumped nearly 83% in the past month as three of seven analysts raised estimates in that time (none lowered).

After reaching supply agreements for iron ore pellets with third-party customers, U.S. Steel recently announced that it would restart production at the idled Keewatin, MN plant. It’s been closed for about a year-and-a-half now and the company will call back more than 200 laid off employees starting this month. Production at the plant could begin as soon as March. The plant has an annual production capacity of about six million net tons.


UTD STATES STL Price and Consensus

UTD STATES STL Price and Consensus | UTD STATES STL Quote

Schnitzer Steel Industries (SCHN) made it to Zacks Rank #1 (Strong Buy) status is the closing days of 2016, and now it has a scheduled quarterly report in the opening days of 2017. The company has a lot to live up to when it announces it’s fiscal first quarter tomorrow. SCHN has put together an average surprise of more than 71% in the past four quarters. Its most recent surprise was nearly 40% in its fiscal fourth quarter. In preliminary results from last month, it forecasted an adjusted loss per share from continuing operations between 3 cents and 6 cents, which is right in line with the Zacks Consensus Estimate for a loss of 4 cents. The company is obviously pretty good at managing expectations, so it’ll be interesting to see how the quarter shakes out.

Here at Zacks, we are most impressed with its earnings estimates. The Zacks Consensus Estimate for this fiscal year has climbed 15.7% in the past two months, while next fiscal year is up 17.2% in that time.That means next fiscal year is expected to be 14.4% better than this fiscal year, which is a trajectory that we really like to see. In addition to Zacks Style Scores of “A” for Momentum and Growth, it also has an “A” grade for Value. Its Value bona fides were recently the focus of a Tale of the Tape article titled “3 Reasons Why Schnitzer Steel is a Great Value Stock”, in which the company’s Price to Forward Sales Ratio and Price/Cash Flow Ratio were highlighted along with its earnings estimates.


SCHNITZER STEEL Price and Consensus


Just this morning, two more stocks from the steel – producers space entered Zacks Rank #1 (Strong Buy) status. Commercial Metals Company (CMC) has Zacks Style Scores of “A” for both Value and Growth with a “B” grade for Momentum. Its Zacks VGM Score is A. Over the past month, earnings estimates of the year ending August 2017 have climbed 3%, while estimates for the following year are up 4.4%.


COMMERCIAL METL Price and Consensus


Olympic Steel (ZEUS) is the other company from the space that made it to a Zacks Rank #1 (Strong Buy) today. It has a Zacks VGM Score of “B”. The stock has made quite a turnaround in the past month as it moved from a Zacks Rank #5 (Strong Sell). Of course, the only way it could make such a move is with upward earnings estimate revisions. There are two covering analysts for 2017 and they both raised over the past 30 days. The Zacks Consensus Estimate for this year is up 25% to $1.14.


OLYMPIC STEEL Price and Consensus

OLYMPIC STEEL Price and Consensus | OLYMPIC STEEL Quote

Finishing Up

Stocks in this industry have surely enjoyed some impressive runs throughout most of 2016, so it’s reasonable to be skeptical that this trend can continue in 2017. But we feel that positive earnings estimates can continue for the space moving forward, especially if the incoming administration proves to be as complimentary as expected. In such an environment, these stocks should keep moving higher.

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