Talk about a sector that has a lot going for it, the steel industry has probably among the best set of tailwinds for 2018, and investors should be thrilled. Combine a continued weak dollar, with production cuts in China, and then add in a president who keeps the pressure up on countries who don’t act fair in trade, and you have all of the ingredients for a stellar 2018.
A new research report from Merrill Lynch’s outstanding analyst Timna Tanners suggests that U.S. benchmark steel prices are set to continue trading through the $700 level in 2018, and the firm raised price targets on its top stocks to Buy. Six companies are boosted higher, and all makes sense for longer-term growth portfolios.
This stock has rallied recently but still offers investors a solid entry point at current levels. AK Steel Holding Corp. (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 Merrill Lynch price target on the shares was raised to $8 from $6. The Wall Street consensus price objective is $6.23, but shares closed Monday above that level at $6.64.
Shares of this lesser known company provide 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.
Shareholders are paid a 1.91% dividend. Merrill Lynch lifted its price target from $27 to $28, while the consensus target is $22.50. The shares closed Monday at $25.28.
This top steel company could do very well if the economy continues to pick up and the administration’s infrastructure push comes back to the forefront. Nucor Corp. (NYSE: NUE) is one of North America’s largest steel producers, with almost 27 million tons of finished steel capacity at 23 mini-mills throughout the United States. The company’s downstream steel products business includes rebar fabrication, steel joists/deck, cold finished bars, fasteners, building systems and wire mesh. Nucor also has 5 million tons of scrap processing capacity.
Nucor has always kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially if a huge infrastructure build-out becomes a reality. Some think that continued demand from the rebuilding of large parts of Houston after Hurricane Harvey and storm damage in Florida could also be a positive.
Nucor investors receive a 2.23% dividend. The $67 Merrill Lynch price target was raised to $75. The posted consensus target is $66.54, and the stock closed Monday at $68.24 a share.