Merrill Lynch Raises Price Targets Again on Red-Hot Steel Stocks

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The Trump rally has been something, and the reason seems clear. For the first time in years investors are actually very positive on real anticipated growth in the economy. For years, stocks traded up on low interest rates, but actual investor participation was lousy. With bond yields rising, the market sees growth and inflation.

One industry that has benefited big-time is steel. Between the expected infrastructure build-out and what many see as restrictions on Chinese dumping, the stocks have taken off. The team at Merrill Lynch has seen the writing on the wall and raised price targets once again on four stocks rated Buy.

AK Steel

This company has been on a roll and offers investors a solid entry point at current levels. AK Steel Holding Corp. (NYSE: AKS) produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled and hot-rolled carbon steel products, as well as specialty stainless and electrical steels in sheet and strip forms.

The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial and construction markets; it buys and sells steel and steel products and other materials; and it produces metallurgical coal from reserves in Pennsylvania.

The Merrill Lynch price target was raised to $13 from $12. The Wall Street consensus price objective is much lower at $7.98. The shares closed Monday at $9.86.

Commercial Metals

Top Wall Street analysts have remained very positive on this company for years. Commercial Metals Co. (NYSE: CMC) manufactures, recycles and markets steel and metal products, and related materials and services in the United States and internationally.

As one of the leading suppliers to the nonresidential construction industry, Commercial Metals has revived as that area of the market has picked up. The U.S. Architecture Billings Index, an economic indicator that provides nine-month to 12-month growth forecasts of nonresidential construction spending activity, has shown growth in 21 of the past 24 months.

Shareholders receive a solid 2.04% dividend. The $24 Merrill Lynch price target was raised to $26. The consensus target is posted at $18.70. Shares closed way above that level on Monday at $23.51.

Nucor

This top steel company could do very well if the economy sees a solid pickup next year and the infrastructure push is in place. Nucor Corp. (NYSE: NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the United States and Canada. The company also is North America’s largest recycler.

Nucor products produced include: carbon and alloy steel, in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh.

While the residential construction market could slow down some in 2017 after years of a very torrid pace, top Wall Street analysts remain positive on nonresidential commercial construction. Nucor always has kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially of a huge infrastructure build-out becomes a reality.

Nucor investors are paid a very solid 2.34% dividend. The Merrill Lynch price target was raised to $73 from $65, while the consensus price target is $58.38. The stock closed Monday at $64.10.

Steel Dynamics

This company rounds out the top Buy-rated companies Merrill Lynch is moving price target higher on. Steel Dynamics Inc. (NASDAQ: STLD) operates six steel mini-mills in Indiana, Virginia, Mississippi and West Virginia. Production capacity has been nearly 10 million tons, of a total 110 million U.S. capacity.

The company makes flat rolled products, special/merchant bars and structural steel products. Steel Dynamics can process about 7 million tons of ferrous scrap and has a downstream operation that processes finished steel. The company’s 2015 revenues were $7.6 billion.

Steel Dynamics investors are paid 1.52% dividend. Merrill Lynch raised its price target to $43 from $337, and the consensus target is $34.80. The stock closed Monday at $36.98.

These companies have traded dramatically higher, so it may make sense to buy partial positions here and see if the market doesn’t pull back from record highs. Either way, steel prices are expected to remain solid in 2017, and the potential for some trade barriers to foreign steel could also prop up things.