Top Analyst Stays Very Bullish on Steel Stocks: 5 to Buy Now

Print Email

For years the steel industry floundered, caught in a trap of low growth and lack of consistent demand, and what many have thought to be a case of serial dumping from China. With China now making huge cuts to its capacity, and construction continuing to drive demand with a whopping 43% of market share, the industry may be poised for another strong year in 2018.

In a new research report, Deutsche Bank analyst Jorge Beristain makes the case that the administration’s concerns on trade are taking at least a temporary backseat to the campaign promises of tax, health care and immigration reform. The report also notes that the energy sector is providing tailwinds for the industry. This was noted in the research report:

Fortunately, the “Shale Revolution” continues gaining momentum with the US poised to become a major exporter of natural gas and LNG exports. With ~$1t trillion already spent on energy infrastructure over the past decade, spend on new well drilling, new pipelines and export terminals are expected to improve steel demand going forward.

Seven steel stocks are rated Buy at Deutsche Bank, and the following five look to have the biggest upside potential.

AK Steel

This stock has sold off recently and offers investors a solid entry point at current levels. AK Steel Holding Corporation (NYSE: AKS) is the sixth largest U.S. steelmaker and has the capacity to produce nearly 7 million tons of a total 110 million tons of U.S. steel capacity. It produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. The company 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.

AK Steel 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 Deutsche Bank price target for the shares is $10. The Wall Street consensus price objective is much lower at $7.68. The stock were trading early on Tuesday at $5.40 a share.

Commercial Metals

Shares of this lesser known company provides solid value for investors at current trading levels. 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 sector, Commercial Metals has revived as that area of the market has picked up. The U.S. Architecture Billings Index (ABI), an economic indicator that provides 9-to-12-month growth forecast of nonresidential construction spending activity, which has shown very consistent growth.

Commercial Metals shareholders are paid a solid 2.6% dividend. The $26 Deutsche Bank price target is well above the consensus price objective of $20.11 a share. The stock traded Monday below both levels at $18.70 apiece.