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3 Steel Stocks That Have Gained More Than 30% This Year
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The steel industry has lost momentum since April this year after enjoying a short-lived bull run, as steel prices fell off the cliff after a massive spike in March 2022, following Russia's invasion of Ukraine.
The industry staged a strong recovery last year after the pandemic-led downturn, thanks to solid pent-up demand and a rally in steel prices to historic highs. The resumption of operations across major steel-consuming sectors such as construction and automotive, following the easing of lockdowns and restrictions globally, led to an upturn in steel demand.
However, steel prices have witnessed a sharp correction globally this year as the Russia-Ukraine conflict, skyrocketing energy costs in Europe, persistently high inflation, interest rate hikes and the slowdown in China due to new COVID-19 lockdowns have dwindled demand for steel across key end-use markets.
The current challenges in the steel industry should not, however, leave investors shunning the stocks belonging to this space. We believe that stocks like Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are worth adding to your portfolio now.
Steel prices hit record highs in 2021 on solid demand, higher raw material costs, tight supply and low steel supply-chain inventories globally. Notably, U.S. steel prices skyrocketed in 2021 on supply tightness and robust demand. The benchmark hot-rolled coil (“HRC”) prices hit a record high of $1,960 per short ton in late September 2021, per S&P Global Platts. But prices lost steam since last October, dragged down by the stabilization of demand, improved supply conditions and higher steel imports.
However, since Russia invaded Ukraine, steel prices significantly rebounded on supply worries and a spike in lead times. Prices witnessed a significant rally as the war threatened supplies from the two major producing nations. Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. The conflict led to a spike in steel input costs due to disruptions in the supply chains.
After surging to nearly $1,500 per short ton around mid-April, the rally in HRC prices stalled as prices witnessed a significant downward correction. HRC prices tumbled to near the $600 per short ton level in November 2022. The downward drift partly reflects weaker demand. Demand in the automotive market weakened due to the semiconductor crunch, hurting automotive production. The Russia-Ukraine war and soaring energy costs have also dwindled demand in Europe. Falling cost of raw materials (including scrap prices), additions of new production capacity and fears of a recession have also contributed to the downswing in U.S. HRC prices. However, prices have found some support of late from U.S. steel mills’ price hike actions.
Global steel prices have also retreated amid weakening demand from China, a top consumer, due to new coronavirus restrictions and the weakening of the country’s real estate sector. The ongoing war in Ukraine, the global economic slowdown and high inflation have also contributed to the demand destruction globally.
Nevertheless, steel demand in automotive is expected to improve in 2023 on the back of an easing of a global shortage in semiconductor chips that weighed heavily on the automotive industry for nearly two years. Low dealer inventories and pent-up demand are likely to be supporting factors. A rebound in automotive demand is also expected to give support to steel prices next year. Meanwhile, order activities in the non-residential construction market also remain healthy, underscoring the underlying strength of this industry. Demand in the energy sector has also improved on the back of an uptick in oil and gas prices.
The massive infrastructure development project is also expected to be a catalyst for the American steel industry and U.S. HRC prices in 2023. The sizable federal infrastructure spending would have a beneficial effect on the domestic steel industry, given the expected increase in consumption of the commodity that is used to make almost everything from rail tracks to roads to bridges and tunnels.
3 Steel Stocks Set to Run Higher
A recovery in automotive demand and the sizable infrastructure investment augur well for the steel industry heading into 2023. We have taken the help of the Zacks Stocks Screener to shortlist stocks that have gained more than 30% this year and are likely to continue their winning streak next year.
Image Source: Zacks Investment Research
Also, these stocks currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Our research shows that stocks with a Zacks Rank #1 or 2 offer the best investment options. The stocks have been witnessing favorable earnings estimate revisions as well.
Olympic Steel: Ohio-based Olympic Steel, carrying a Zacks Rank #1, is benefiting from its strong liquidity position, actions to lower operating expenses, and strength in its pipe and tube and specialty metals businesses. Improving industrial market conditions and a rebound in demand are expected to support its volumes. The company’s strong balance sheet also allows it to invest in higher-return growth opportunities.
The Zacks Consensus Estimate for Olympic Steel’s current-year earnings has been revised 4.8% upward over the past 60 days. The Zacks Consensus Estimate for 2023 has also been revised 21.1% upward over the same time frame. ZEUS has also outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 25.4%. Shares of ZEUS have popped 45.6% so far this year.
Commercial Metals: Texas-based Commercial Metals, sporting a Zacks Rank #1, is gaining from robust steel demand, stemming from a growing downstream backlog and solid levels of new construction work entering the project pipeline. Healthy construction markets will likely support strong rebar and wire rods demand in North America. Steel sales volumes in Europe are anticipated to remain firm on increasing demand from the construction and industrial end market. CMC also continues to gain from its ongoing network optimization efforts. It also has solid liquidity and financial positions and remains focused on reducing debt.
The consensus estimate for the current fiscal-year earnings for Commercial Metals has been revised 13.8% upward over the past 60 days. The company has also outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this time frame, it delivered an average earnings surprise of roughly 19.7%. CMC shares have also shot up 35.8% year to date.
Steel Dynamics: Based in Indiana, Steel Dynamics carries a Zacks Rank #2. It is benefiting from strong momentum in the non-residential construction sector driven by healthy customer order activity. Steel Dynamics is also currently executing a number of projects that should add to its capacity and boost profitability. STLD is ramping up operations at its Sinton Flat Roll Steel Mill. The planned investment in a new state-of-the-art low-carbon aluminum flat-rolled mill also continues its strategic growth.
The Zacks Consensus Estimate for Steel Dynamics for the current year has been revised 7.3% upward over the past 60 days. The consensus estimate for 2023 has also been revised 5% upward over the same time frame. STLD also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 6.2%. Shares of STLD have surged 73.4% so far this year.
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3 Steel Stocks That Have Gained More Than 30% This Year
The steel industry has lost momentum since April this year after enjoying a short-lived bull run, as steel prices fell off the cliff after a massive spike in March 2022, following Russia's invasion of Ukraine.
The industry staged a strong recovery last year after the pandemic-led downturn, thanks to solid pent-up demand and a rally in steel prices to historic highs. The resumption of operations across major steel-consuming sectors such as construction and automotive, following the easing of lockdowns and restrictions globally, led to an upturn in steel demand.
However, steel prices have witnessed a sharp correction globally this year as the Russia-Ukraine conflict, skyrocketing energy costs in Europe, persistently high inflation, interest rate hikes and the slowdown in China due to new COVID-19 lockdowns have dwindled demand for steel across key end-use markets.
The current challenges in the steel industry should not, however, leave investors shunning the stocks belonging to this space. We believe that stocks like Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are worth adding to your portfolio now.
Steel prices hit record highs in 2021 on solid demand, higher raw material costs, tight supply and low steel supply-chain inventories globally. Notably, U.S. steel prices skyrocketed in 2021 on supply tightness and robust demand. The benchmark hot-rolled coil (“HRC”) prices hit a record high of $1,960 per short ton in late September 2021, per S&P Global Platts. But prices lost steam since last October, dragged down by the stabilization of demand, improved supply conditions and higher steel imports.
However, since Russia invaded Ukraine, steel prices significantly rebounded on supply worries and a spike in lead times. Prices witnessed a significant rally as the war threatened supplies from the two major producing nations. Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. The conflict led to a spike in steel input costs due to disruptions in the supply chains.
After surging to nearly $1,500 per short ton around mid-April, the rally in HRC prices stalled as prices witnessed a significant downward correction. HRC prices tumbled to near the $600 per short ton level in November 2022. The downward drift partly reflects weaker demand. Demand in the automotive market weakened due to the semiconductor crunch, hurting automotive production. The Russia-Ukraine war and soaring energy costs have also dwindled demand in Europe. Falling cost of raw materials (including scrap prices), additions of new production capacity and fears of a recession have also contributed to the downswing in U.S. HRC prices. However, prices have found some support of late from U.S. steel mills’ price hike actions.
Global steel prices have also retreated amid weakening demand from China, a top consumer, due to new coronavirus restrictions and the weakening of the country’s real estate sector. The ongoing war in Ukraine, the global economic slowdown and high inflation have also contributed to the demand destruction globally.
Nevertheless, steel demand in automotive is expected to improve in 2023 on the back of an easing of a global shortage in semiconductor chips that weighed heavily on the automotive industry for nearly two years. Low dealer inventories and pent-up demand are likely to be supporting factors. A rebound in automotive demand is also expected to give support to steel prices next year. Meanwhile, order activities in the non-residential construction market also remain healthy, underscoring the underlying strength of this industry. Demand in the energy sector has also improved on the back of an uptick in oil and gas prices.
The massive infrastructure development project is also expected to be a catalyst for the American steel industry and U.S. HRC prices in 2023. The sizable federal infrastructure spending would have a beneficial effect on the domestic steel industry, given the expected increase in consumption of the commodity that is used to make almost everything from rail tracks to roads to bridges and tunnels.
3 Steel Stocks Set to Run Higher
A recovery in automotive demand and the sizable infrastructure investment augur well for the steel industry heading into 2023. We have taken the help of the Zacks Stocks Screener to shortlist stocks that have gained more than 30% this year and are likely to continue their winning streak next year.
Image Source: Zacks Investment Research
Also, these stocks currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Our research shows that stocks with a Zacks Rank #1 or 2 offer the best investment options. The stocks have been witnessing favorable earnings estimate revisions as well.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel: Ohio-based Olympic Steel, carrying a Zacks Rank #1, is benefiting from its strong liquidity position, actions to lower operating expenses, and strength in its pipe and tube and specialty metals businesses. Improving industrial market conditions and a rebound in demand are expected to support its volumes. The company’s strong balance sheet also allows it to invest in higher-return growth opportunities.
The Zacks Consensus Estimate for Olympic Steel’s current-year earnings has been revised 4.8% upward over the past 60 days. The Zacks Consensus Estimate for 2023 has also been revised 21.1% upward over the same time frame. ZEUS has also outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 25.4%. Shares of ZEUS have popped 45.6% so far this year.
Commercial Metals: Texas-based Commercial Metals, sporting a Zacks Rank #1, is gaining from robust steel demand, stemming from a growing downstream backlog and solid levels of new construction work entering the project pipeline. Healthy construction markets will likely support strong rebar and wire rods demand in North America. Steel sales volumes in Europe are anticipated to remain firm on increasing demand from the construction and industrial end market. CMC also continues to gain from its ongoing network optimization efforts. It also has solid liquidity and financial positions and remains focused on reducing debt.
The consensus estimate for the current fiscal-year earnings for Commercial Metals has been revised 13.8% upward over the past 60 days. The company has also outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this time frame, it delivered an average earnings surprise of roughly 19.7%. CMC shares have also shot up 35.8% year to date.
Steel Dynamics: Based in Indiana, Steel Dynamics carries a Zacks Rank #2. It is benefiting from strong momentum in the non-residential construction sector driven by healthy customer order activity. Steel Dynamics is also currently executing a number of projects that should add to its capacity and boost profitability. STLD is ramping up operations at its Sinton Flat Roll Steel Mill. The planned investment in a new state-of-the-art low-carbon aluminum flat-rolled mill also continues its strategic growth.
The Zacks Consensus Estimate for Steel Dynamics for the current year has been revised 7.3% upward over the past 60 days. The consensus estimate for 2023 has also been revised 5% upward over the same time frame. STLD also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 6.2%. Shares of STLD have surged 73.4% so far this year.