Merrill Lynch Says New Trump Tariffs Huge for 5 Top Steel Stocks

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It has become pretty clear, or at least it should be to nations around the world that are not committed to fair trade, if you don’t play ball with the Trump administration, there will be consequences. On Thursday, the U.S. Department of Commerce announced that the exemptions granted to Canada, Mexico and the European Union would expire at midnight, and those regions would now be subject to 25% tariff on steel imports and 10% on aluminum.

While the president can change his mind at any time, the bottom line is that due to higher demand and fewer imports, the price for steel is going higher, and the analysts at Merrill Lynch feel that numerous companies in the industry look poised to benefit.

We screened the stocks in their new report for those rated Buy and found five that look like solid picks now.

Allegheny Technologies

This company has hit our insider buying screens in the past and also makes good sense for long-term accounts. Allegheny Technologies Inc. (NYSE: ATI) produces and sells specialty materials and components worldwide. The company operates through two segments.

The High Performance Materials & Components segment provides various high-performance materials, including titanium and titanium-based alloys; nickel- and cobalt-based alloys and superalloys; zirconium and related alloys, such as hafnium and niobium, advanced powder alloys, and other specialty materials, in long product forms of ingots, billets, bars, rods, wires, shapes and rectangles, and seamless tubes, plus precision forgings, castings, components and machined parts.

The Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys, specialty alloys, and titanium and titanium-based alloys in various forms, including plate, sheet, engineered strip, and Precision Rolled Strip products, as well as grain-oriented electrical steel. This segment serves oil and gas/chemical and hydrocarbon processing industry, electrical energy, automotive, food processing equipment and appliances, construction and mining, electronics, communication equipment and computers, and aerospace and defense markets.

The Merrill Lynch price target for the shares is $32, and the Wall Street consensus target is $32.80. The shares closed Thursday’s trading at $28.52 apiece.

Nucor

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 and Puerto Rico could also be a positive.

Nucor investors are paid a solid 2.37% dividend. Merrill Lynch has a $75 price target, essentially in line with consensus target of $75.60. The stock closed Thursday at $64.19 a share.