In this article we will take a look at the 10 best steel stocks to buy amid upcoming infrastructure, construction boom. You can skip our detailed analysis of these companies, and go directly to the 5 Best Steel Stocks to Buy Amid Upcoming Infrastructure, Construction Boom.
Steel prices are soaring amid a rising demand as economy begins to recover after suffering in 2020 because of the coronavirus crisis. Data from S&P Global Platts shows that steel prices have increased by 60% since the start of 2021.
The World Steel Association recently forecast a 5.8% jump in global steel demand this year as economies recover from the pandemic. Perhaps now is the best time to pile into steel stocks to profit from the upcoming infrastructure and construction boom, fueled by President Biden’s infrastructure and jobs plan. The $2 trillion plan earmarks about $115 billion for road repairs and bridges, while $85 billion are allocated to modernize transit systems. All of this would buoy steel companies like Vale S.A. (NYSE: VALE), ArcelorMittal (NYSE: MT), Nucor Corporation (NYSE: NUE), United States Steel Corporation (NYSE: X), Steel Dynamics, Inc. (NASDAQ: STLD) and Cleveland-Cliffs (NYSE:CLF).
Steel companies that make raw material for automobile production are also set to gain from the increasing demand of automobiles in the country. In the first three months of 2021, auto sales jumped 11.3% in the US, according to data from Wards Intelligence.
Steel producers will also gain from the resurgence in economic activity all over the world. In April, global crude steel production increased by 23% year over year. Economic activity in China, Russia and Brazil added to most of these gains.
In this article we list some of theto buy amid upcoming infrastructure and construction boom not only in the US, but also worldwide.
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Let’s now discuss our list of the 10 best steels stocks to buy amid upcoming infrastructure, construction boom. These stocks have a long-term growth potential and are receiving positive attention from market analysts and investors.
Best Steels Stocks to Buy
10. ArcelorMittal (NYSE: MT)
Number of Hedge Fund Holders: 21
ArcelorMittal (NYSE: MT) is a Luxembourg-based steel company that was formed in 2006 after the merger of Arcelor and India-based Mittal Steel. The stock has gained 36% year to date. ArcelorMittal (NYSE: MT) accounts for close to 5% of the global steel production. With a PE ratio of 14, the stock is still valued at an attractive price, considering the upcoming boom amid the infrastructure push in the US and an expected increase in construction activities in the world. The stock ranks 10th in our list of the best steel stocks to buy now.
Hedge funds are also becoming bullish on this steel stock. As of the end of the first quarter of 2021, 21 hedge funds out of the 866 funds tracked by Insider Monkey held stakes in ArcelorMittal (NYSE: MT), compared to 18 funds a quarter earlier.
Like Schnitzer Steel Industries, Inc. (NASDAQ: SCHN), Nucor Corporation (NYSE: NUE), United States Steel Corporation (NYSE: X), Steel Dynamics, Inc. (NASDAQ: STLD) and Cleveland-Cliffs (NYSE:CLF), ArcelorMittal (NYSE: MT) is one of the best stocks to buy to take profits from the infrastructure boom.
As of the first quarter of 2021, there are 21 hedge funds that hold a position in ArcelorMittal (NYSE: MT) compared to 18 funds in the fourth quarter. The biggest stakeholder of the company is GQG Partners, with 12.4 million shares, worth $361.97 million.
9. Schnitzer Steel Industries, Inc. (NASDAQ: SCHN)
Number of Hedge Fund Holders: 12
Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) is an Oregon-based steel manufacturing and scrap metal recycling company. The stock ranks 9th in our list of the best steel stocks to buy now.
Earlier in June, Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) jumped after the company said it expects its FQ3 ferrous and finished steel sales volumes to surpass its previous guidance. The company now expects ferrous volumes to be 25% higher than the volumes recorded in the second quarter. In April, Goldman Sachs’ Emily Chieng gave a Buy rating to Schnitzer Steel Industries, Inc. (NASDAQ: SCHN).
The stock is also an attractive option for income investors as the company has a dividend yield of 1.42%.
With a $7.05 million stake in SCHN, Millennium Management owns 168,842 shares of the company as of the end of the first quarter of 2021. Our database shows that 12 hedge funds held stakes in SCHN as of the end of the first quarter, versus 9 funds in the fourth quarter.
8. Vale S.A. (NYSE: VALE)
Number of Hedge Fund Holders: 31
With a market cap of $118 billion and a dividend yield of over 3%, Brazil-based Vale S.A. (NYSE: VALE) is one of the best steel stocks to buy amid upcoming infrastructure and construction boom in the world. The stock ranks 8th in our list of the best steel stocks to buy now.
In the first quarter, Vale S.A. (NYSE: VALE)’s adjusted EBITDA in the period almost tripled year over year to $8.35 billion. The company said that net operating revenue from China more than doubled in the period as demand from the country rose amid economic recovery.
As of the end of the first quarter, there were 31 hedge funds in Insider Monkey’s database that held stakes in Vale S.A. (NYSE: VALE), compared to 35 funds in the fourth quarter. Fisher Asset Management, with 38.07 million shares of VALE, is the biggest stakeholder in the company.
Like Nucor Corporation (NYSE: NUE), United States Steel Corporation (NYSE: X), ArcelorMittal (NYSE: MT), Steel Dynamics, Inc. (NASDAQ: STLD) and Cleveland-Cliffs (NYSE:CLF), Vale S.A. (NYSE: VALE) is one of the best stocks to buy to take profits from the infrastructure boom.
7. Nucor Corporation (NYSE: NUE)
Number of Hedge Fund Holders: 25
Nucor Corporation (NYSE: NUE) is a North Carolina-based steel company that is among the best steel stocks to buy amid upcoming infrastructure and construction boom. The company has a dividend yield of 1.58%. Analysts believe that the falling steel imports of the US will benefit local steel companies like Nucor Corporation (NYSE: NUE). The company operates three main businesses: steel mills, steel products and raw materials. The stock ranks 7th in our list of the best steel stocks to buy now.
The company plans to allocate about $400-$500 million to maintain CapEx budget in 2021.
Like United States Steel Corporation (NYSE: X), Vale S.A. (NYSE: VALE), ArcelorMittal (NYSE: MT), Steel Dynamics, Inc. (NASDAQ: STLD) and Cleveland-Cliffs (NYSE:CLF), Nucor Corporation (NYSE: NUE) is one of the best stocks to buy to take profits from the infrastructure boom.
Madison Funds, in their Q1 2021 investor letter, mentioned Nucor Corporation (NYSE: NUE). Here is what Madison Funds has to say about Nucor Corporation in its letter:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic
conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
6. United States Steel Corporation (NYSE: X)
Number of Hedge Fund Holders: 22
United States Steel Corporation (NYSE: X) is one of the best steel stocks to buy to profit from the upcoming infrastructure boom. Recently, GLJ Research gave bullish comments about the stock in a report, upping its price target for the company to $39.55 from $23.89. The firm said that 2021 will be a “game changer” for United States Steel Corporation (NYSE: X)’s free cash flow generation. The report also noted that the stock’s valuation “appears to be miles away from reality.”
In the first quarter of 2021, billionaire D E Shaw’s hedge fund increased its hold in United States Steel Corporation (NYSE: X) by 70%, ending the period with 11.2 million shares of the company. Another notable hedge fund having stakes in the company is John Overdeck and David Siegel’s Two Sigma Advisors, which upped its hold in the company by 160% in the first quarter.
Like Vale S.A. (NYSE: VALE), ArcelorMittal (NYSE: MT), Nucor Corporation (NYSE: NUE), Steel Dynamics, Inc. (NASDAQ: STLD) and Cleveland-Cliffs (NYSE:CLF), United States Steel Corporation (NYSE: X) is one of the best stocks to buy to take profits from the infrastructure boom.
D E Shaw is one of the 22 hedge funds tracked by Insider Monkey having stakes in X at the end of the fourth quarter. The fund owns over 11.2 million shares of the company.
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Disclosure: None. 10 Best Steels Stocks to Buy Amid Upcoming Infrastructure, Construction Boom is originally published on Insider Monkey.
