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3 Solid Steel Stocks to Bet on Despite the Slump in Prices

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The steel industry, a pillar of industrial growth, is hamstrung by significant challenges as steel prices have experienced a sharp decline on a slowdown in end-market demand. Notably, U.S. steel prices have seen a significant downward correction this year after a strong run in late 2023 that extended into early 2024.

Despite the industry’s downturn, a few stocks are holding up well and look poised to run further. L.B. Foster Company (FSTR - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and Gerdau S.A. (GGB - Free Report) fit the bill.  

Steel prices have witnessed a steep decline in the United States and globally this year. The benchmark hot-rolled coil (HRC) prices tumbled to below the $700 per short ton level in late September 2023. The downside was partly driven by shorter lead times. The United Auto Workers (UAW) strike and the lower cost of raw materials also weighed on HRC prices. Nevertheless, U.S. steel prices rebounded during the fourth quarter, with HRC prices breaking above $1,000 per short ton in December, driven by U.S. steel mills’ price hike actions and the resolution to the UAW strike.

However, HRC prices have retreated since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. This more than 30% decline was influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and global economic uncertainties. Sluggish industrial production and construction activities also contributed to the decline. The price slump has led to lower profitability for steel producers. U.S. HRC prices continue their downward slide, being pressured by an influx of imports, currently hovering above the $700 per short ton level.

The construction sector has experienced a slowdown in the United States due to high interest rates, dampening steel demand in this key end market. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Manufacturing activities have also weakened amid softening demand for goods and higher borrowing costs.

On a positive note, demand in the automotive sector, a major consumer of steel, has improved as automotive production has picked up on easing supply chain disruptions. Meanwhile, demand in non-residential construction remains resilient with strong order activities. Infrastructure projects in the United States are on the rise, driven by government initiatives to upgrade transportation and utility networks.

Globally, economic slowdown and energy price volatility have dampened industrial activities in Europe, curbing steel demand. Demand in China, the world's largest steel producer and consumer of the commodity, is also under pressure. The country, which accounts for more than half of global steel production and consumption, is experiencing slower economic growth and a cooling real estate market.

China’s sluggish property market and slowing infrastructure investments have led to weakened domestic demand for steel. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. Notably, real estate accounts for roughly 40% of China's steel consumption. Depressed demand in China and the oversupply in the market have exerted pressure on global steel prices.

3 Steel Stocks Worth a Wager

Declining prices, along with demand and economic headwinds paint a challenging picture for the steel industry. Nonetheless, certain steel stocks show promise despite the downturn. We highlight the following three stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) that are worth betting on in the current scenario.

You can see the complete list of today’s Zacks #1 Rank stocks here.

L.B. Foster: Pennsylvania-based L.B. Foster is gaining from higher volumes, a favorable product mix and strategic transformation initiatives. Its business portfolio actions and profitability initiatives are driving results across its business segments. FSTR’s Rail business, which experienced a lackluster performance in 2023, has bounced back significantly this year, delivering remarkable organic sales growth. It is also seeing improved sales and profitability across its steel products businesses. Strong demand across most of its end markets has led to a higher backlog. FSTR remains committed to its capital allocation priorities while investing in organic growth and acquisition opportunities.

L.B. Foster, sporting a Zacks Rank #1, has expected earnings growth of a staggering 1,223% for 2024. The Zacks Consensus Estimate for FSTR’s earnings for 2024 has been revised upward by 60.7% over the last 60 days.

Carpenter Technology: Pennsylvania-based Carpenter Technology is benefiting from the ongoing momentum across its end-use markets including aerospace and defense. Aerospace is gaining from a pickup in global travel. The company’s financial position has been strong, providing it with the flexibility to invest in the emerging technologies of additive manufacturing and soft magnetics. CRS’s cost-reduction initiatives are also anticipated to boost its margins. Improved productivity, product mix optimization and pricing actions are driving profitability. Backed by record backlog levels, its near and long-term outlooks for each end-use market remain positive.

Carpenter Technology, carrying a Zacks Rank #1, has expected earnings growth of 278.1% for fiscal 2024. The Zacks Consensus Estimate for CRS’s fiscal 2024 earnings has been revised upward by 8.8% over the last 60 days.

Gerdau: Brazil-based Gerdau is benefiting from healthy domestic demand for steel, which is supporting its volumes. A recovery in major consumer sectors is driving its steel shipments. The company is seeing higher production and shipments in Brazil and remains focused on delivering higher-value-added products to the domestic market. Healthy demand from the construction and manufacturing sectors is driving shipments in Brazil. A recovery in the Brazilian civil construction sector, higher automotive production and infrastructure investments bode well.

Gerdau carries a Zacks Rank #2. The Zacks Consensus Estimate for GGB’s earnings for 2024 has been revised upward by 34.9% over the last 60 days. It has a trailing four-quarter earnings surprise of roughly 7.3%, on average.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Gerdau S.A. (GGB) - free report >>

Carpenter Technology Corporation (CRS) - free report >>

L.B. Foster Company (FSTR) - free report >>

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