Steel Dynamics News
U.S. Steel, Nucor, and Steel Dynamics have rallied over the past few months in hopes that rising economic growth will mean greater profits down the road. Here's why their unimpressive outlooks might rain on the parade.
But here are a few thoughts ahead of the holiday.
Steel stocks have soared in the past few months, but underlying results continue to stagnate throughout 2013. Should you buy into the rally?
Steel stocks have been melting up recently, with three-month gains ranging from 11% for Nucor (NUE) and 17% for Steel Dynamics (STLD), to a 44% rise in US Steel (X) and a 51% surge in AK Steel (AKS). Yes, says Wells Fargo analysts Sam Dubinsky and Amir Chaudhri. They write: Steel stocks have had an impressive move off an ugly bottom due to a recovery in sheet prices, which are now at the highest level since April 2012. We downgrade US Steel to Underperform from Market Perform as we believe shares are being rewarded prematurely on cost cutting measures and we downgrade Nucor to Market Perform from Outperform due mostly to valuation.
Steel prices have been under pressure because of slack demand and oversupply; that may be starting to change, which would make recent price hikes a big win for the steel industry.
Three months ago, US Steel (X) and AK Steel (AKS) had been left for dead. Then they each surged nearly 50% as steel prices started rising. They write: Steel prices and the stocks of the steel companies (particularly AKS and X) have had a nice run over the past months. However, we don't think steel prices will move much higher in the near term and wouldn't expect much more outperformance from AKS and X. In our opinion, some of the drivers that increased steel prices since June appear to be running out of steam and could start to weigh on the market.
When it comes to making steel, there are some costs that aren't faced by every player—these so-called “legacy” costs can make a big difference, particularly when times are tough.
Steel stocks are very cyclical. And as you are probably aware, when dealing with cyclical stocks you usually buy them when they expensive and sell them when they are cheap.
Sure, Morgan Stanley didn't quite put it that way, but how else are we supposed to take its upgrade of the former and the downgrade of the latter? Morgan Stanley's Evan Kurtz and team explain why they're upgrading US Steel to Overweight from Equal Weight: ...we have become more confident that the new management team [at US Steel] is taking a serious and transformational approach to cost cutting. Our $35 price target (up from $32) assumes management pares core flat-rolled costs, which exclude legacy liabilities and purchased raw materials, from $545/t in 2012 to the 2010 level of $515/t.
US Steel, AK Steel Lead Steel Stocks On A Hot Roll
The Steel ETF (SLX) rose in Monday trading as Goldman Sachs boosted their outlook on the steel industry.
Steel is one of those industries that are cyclical by nature, but should you jump into a company like AK Steel Holdings or US Steel on an outlook change alone or put money behind industry leaders like Nucor and Steel Dynamics?