The resumption of construction, manufacturing, and industrial activities caused steel demand to surge and enabled an industry rebound last year. China’s production cuts to reduce its carbon emissions, followed by a significant decline in its exports, led to a supply crunch worldwide and pushed steel prices higher last year. The situation benefitted steel producers in other countries. But unfortunately, the war between Russia and Ukraine, two significant exporters of iron ore and steel products, has been raising new concerns about the global steel supply, driving steel prices higher.
As oil, natural gas, and electricity prices rise, domestic steel manufacturers are expected to raise their prices to meet rising input costs and capitalize on the growing global demand. Furthermore, significant funding from the bipartisan infrastructure bill passed last fall, and the easing of tariffs on steel imports from the EU and Japan, should drive the industry’s growth. Investors’ interest in this space is evidenced by the VanEck Vectors Steel ETF’s (SLX) 9% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) negative returns. The global structural steel market is expected to grow at a 4.5% CAGR to reach $979.20 billion by 2028.
Given this backdrop, we think the stocks of fundamentally sound steel companies Nucor Corporation (NUE), POSCO Holdings Inc. (PKX), Tenaris S.A. (TS), Nippon Steel Corporation (NPSCY), and Steel Dynamics, Inc. (STLD) could be solid bets now. Their solid growth attributes, lower valuations, and higher profit margins position these stocks well to capitalize on the industry tailwinds.
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Nucor Corporation (NUE)
NUE in Charlotte, N.C. is a manufacturer of steel and steel products and operates through Steel Mills; Steel Products; and Raw Materials segments. The company also produces ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI), and galvanized sheet steel. Its products are sold by its in-house sales force and internal distribution and trading companies.
On Feb. 3, 2022, NUE completed the acquisition of California Steel Industries, Inc. (CSI), a steel processing and finishing company, by purchasing a 50% equity interest from a subsidiary of Brazilian mining company Vale S.A. (VALE), as well as a 1% equity ownership stake from Japanese steel manufacturer JFE Steel Corporation. This joint venture should help NUE enhance its ability to produce an even wider range of value-added sheet products and serve customers in the construction, service center, and energy industries.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, NUE’s net sales increased 97% year-over-year to $10.36 billion. The company’s EBIT came in at $3.01 billion, up 1281.2% from the prior-year period. Its net earnings were $2.25 billion, indicating a 44.4% year-over-year improvement. And NUE’s EPS increased 513.1% year-over-year to $7.97. The company had $2.36 billion in cash and cash equivalents as of December 31, 2021.
Analysts expect NUE’s EPS to improve 146.2% year-over-year to $7.68 for its fiscal 2022 first quarter, ending March 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $10.43 billion consensus revenue estimate for the same fiscal year represents a 45.1% rise from the prior-year period. The company’s EPS is expected to grow at a 37.8% rate per annum over the next five years.
Over the past three months, the stock has gained 18% in price and closed yesterday’s trading session at $133.56. NUE’s trailing-12-month gross profit margin, ROE, and ROTC are 30.3%, 55.1%, and 31%, respectively.
In terms of forward EV/Sales, NUE is currently trading at 1.04x, which is 39.5% lower than the 1.72x industry average. And in terms of forward EV/EBIT, NUE is currently trading at 5.15x, which is 52.7% lower than the 10.88x industry average.
NUE’s total assets and tangible book value have grown at CAGRs of 13% and 14.2%, respectively, over the past three years.
NUE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Momentum, and Quality. Click here to see the additional ratings for NUE’s Stability, Sentiment, and Value.
NUE is ranked #19 of 33 stocks in the A-rated Steel industry.
POSCO Holdings Inc. (PKX)
PKX is a Seoul, South Korea-based company that manufactures and sells steel products. The company produces hot-rolled steel, cold-rolled steel, stainless steel, and other steel forms. It provides its products mainly to the automobile, construction, and shipbuilding industries.
On Jan. 7, 2022, PKX’s Hagang Pohang, a joint venture with HBIS Group, a Chinese manufacturer and distributor of steel materials, began constructing a new plant for automotive steel plates in Tangshan, Hebei province, China. This new plant is expected to produce 900K tons annually, with an anticipated completion date of the end of 2023. The joint venture should help build a solid supply chain to meet China's growing demands for steel plates.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, PKX’s revenues increased 32.1% year-over-year to KRW76.33 trillion ($61.80 billion). The company’s gross profit came in at KRW11.88 trillion ($9.62 billion), representing a 151.7% rise from the year-ago period. Its operating profit was KRW9.24 trillion ($7.48 billion) for the quarter, representing a 284.4% rise from the prior-year period. PKX’s net profit came in at KRW7.20 trillion ($5.83 billion), up 302.5% from the year-ago period. The company had cash of KRW46.62 trillion ($37.75 billion) as of Dec. 31, 2021.
The $62.99 billion consensus revenue estimate for its fiscal year 2022, ending Dec. 31, 2022, represents an 87.3% rise from the prior-year period.
Over the past three months, the stock has declined 4.5% in price to close yesterday’s trading session at $57.38. PKX’s trailing-12-month gross profit margin, ROE, and ROTC are 15.6%, 14%, and 8%, respectively.
Over the past three years, the company’s total assets and tangible book value have increased at CAGRs of 5.3% and 6.5%, respectively.
In terms of forward EV/Sales, PKX is currently trading at 0.98x, which is 42.9% lower than the 1.72x industry average. Its 8.18x forward EV/EBIT is 24.8% lower than the 10.88x industry average.
PKX’s POWR Ratings reflect its solid prospects. It has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value, Momentum, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see PKX’s Growth, Sentiment, and Quality ratings here.
PKX is ranked #21 of 33 stocks in the Steel industry.
Tenaris S.A. (TS)
Based in Luxembourg, TS produces and sells seamless and welded steel tubular products and provides related services for the oil and gas industry and other industrial applications. The company also provides sucker rods, industrial equipment, heat exchangers, and utility conduits for buildings and sells energy and raw materials. In addition, it offers financial services.
TS’ net sales for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, increased 82% year-over-year to $2.06 billion. The company’s gross profit came in at $656.79 million, representing a 179.3% year-over-year improvement. Its operating income was $273.32 million, representing a 3601% rise from the prior-year period. TS’ net income came in at $336.14 million for the quarter, representing a 207% rise from the year-ago period. And as of Dec.31, 2021, the company had $318.13 million in cash and equivalents.
The $0.64 consensus EPS estimate for its fiscal year 2022 first quarter, ending March 31, 2022, represents a 255.6% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And analysts expect the company’s revenue to be $2.30 billion for the same quarter, indicating a 94.4% rise from the prior-year period.
TS has gained 41.1% in price over the past three months and ended yesterday’s trading session at $28.85. Its trailing-12-month gross profit margin, ROE, and ROTC are 30.1%, 8.9%, and 3.8%, respectively.
Over the past three years, the company’s total assets and tangible book value have increased at CAGRs of 0.5% and 0.9%, respectively.
And in terms of forward EV/Sales, TS is currently trading at 1.77x, which is 28.5% lower than the 2.47x industry average. Its 10.62x forward EV/EBIT is 6.4% lower than the 11.35x industry average.
TS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B grade for Growth, Momentum, and Quality. Click here to see the additional ratings for TS’ Value and Stability.
TS is ranked #14 in the Steel industry.
Nippon Steel Corporation (NPSCY)
Headquartered in Tokyo, Japan, NPSCY engages in steelmaking and steel fabrication, engineering and construction, chemicals and materials, and system solutions businesses internationally. The company mainly produces and sells steel plates, steel pipes, structural steel and offers chemicals, new materials, and other products.
On Feb. 17, 2022, NPSCY acquired G Steel Public Company Limited and G J Steel Public Company Limited, the only integrated flat steel producer in Thailand that supplies hot-rolled steel sheets from electric arc furnaces (EAFs) and hot strip mills. Operating as NPSCY’s subsidiaries going forward, these steel mills should help NPSCY expand its integrated production capacity in Thailand and other overseas markets.
For its fiscal year 2021 third quarter, ended Dec. 31, 2021, NPSCY’s revenue increased 43.3% year-over-year to ¥4.94 billion ($42.27 billion). The company’s gross profit came in at ¥904.66 billion ($403.04 million), indicating a 168.3% gain over the prior-year period. Its operating profit was ¥728.14 billion ($6.23 billion), versus a ¥67.39 billion ($576.34 million) in the year-ago period. NPSCY’s net profit came in at ¥528.83 billion ($4.52 billion), compared to a ¥116.48 billion ($996.28 million) loss in the prior-year period. And its EPS was ¥533.32, versus a ¥134.45 loss per share in the year-ago period. The company had cash and cash equivalents of ¥626.38 billion ($5.36 billion) as of Dec. 31, 2021.
Analysts expect the company’s revenue to reach $14.98 billion for its fiscal year 2022 fourth-quarter, ending March 31, 2022, representing a 17.9% improvement from the year-ago period. Over the past three months, the stock has gained 11.5% in price and ended yesterday’s trading session at $17.64. NPSCY’s trailing-12-month gross profit margin, ROE, and ROTC are 17.9%, 19%, and 7.4%, respectively.
The company’s total assets and tangible book value have increased at CAGRs of 12.9%, 20.3%, and 9%, respectively, over the past three years.
In terms of forward EV/Sales, NPSCY is currently trading at 1x, which is 40.4% lower than the 1.68x industry average. And NPSCY’s 0.44x forward Price/Sales is 70.1% lower than the 1.47x industry average.
NPSCY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Growth, Stability, Momentum, and Sentiment. Click here to see the additional ratings for NPSCY’s Quality.
NPSCY is ranked #2 in the Steel industry.
Steel Dynamics, Inc. (STLD)
STLD is a diversified domestic steel producer and metals recycler. The Fort Wayne, Ind., company operates through three segments—Steel; Metals Recycling; and Steel Fabrication Operations. It also exports products that include primarily flat-rolled steel sheets, engineered bar special-bar-quality, and structural beams.
On Jan. 31, 2022, STLD acquired a minority equity interest in New Process Steel, L.P., a metals solution, and distribution supply-chain management company. The minority equity interest should enable STLD to expand its exposure to value-added manufacturing opportunities while serving other long-standing flat roll steel customers.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, STLD’s net sales increased 104.2% year-over-year to $5.31 billion. The company’s gross profit came in at $1.76 billion, up 298.4% from the prior-year period. Its operating income came in at $1.43 billion for the quarter, up 452.3% from the prior-year period. While its net income increased 480.5% year-over-year to $1.09 billion, its EPS grew 516.9% to $5.49. And as of Dec. 31, 2021, the company had $1.24 billion in cash and equivalents.
The $5.08 consensus EPS estimate for its fiscal year 2022 first quarter, ending March 31, 2022, represents a 141.9% year-over-year improvement. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenue to be $5.17 billion for the same quarter, indicating a 52.5% rise from the prior-year period. And STLD’s EPS is expected to grow at a 36.3% rate per annum over the next five years.
STLD stock has gained 15.5% in price over the past year and ended yesterday’s trading session at $339.56. Its trailing-12-month gross profit margin, ROE, and ROTC are 29.1%, 60.9%, and 31.5%, respectively.
Over the past three years, the company’s total assets and tangible book value have increased at CAGRs of 17.6% and 19.8%, respectively.
In terms of forward EV/Sales, STLD is currently trading at 0.85x, which is 49.4% lower than the 1.68x industry average. And STLD’s 4.60x forward EV/EBIT is 57.9% lower than the 10.94x industry average.
STLD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Quality. Click here to see the additional ratings for STLD (Sentiment and Stability).
STLD is ranked #17 in the Steel industry.
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NUE shares were trading at $135.70 per share on Friday morning, up $2.14 (+1.60%). Year-to-date, NUE has gained 18.88%, versus a -10.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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