It’s a digital world, driven by retail consumption, but heavy industry is far from obsolete. Manufacturing, mining, construction, steel – they all remain vital in today’s economy and all offer plenty of opportunities for investors. A recent report from Credit Suisse calls for bullishness on steel.
The company’s 5-star analyst Curt Woodworth writes of the operating phases of the US steel industry: “What was once seen as a more transient supply-driven cycle has now moved into a more sustainable demand-driven cycle, which is very broad in terms of drivers, with renewable energy being an undervalued part of the story in our eyes.”
“Demand for steel has risen sharply over the past quarter, so despite increased domestic and foreign supply, steel prices continue to soar with spot deals as high as $2,000/pc,” Woodworth added, detailing why he optimistic about the US. steel sector. “Given impending plant outages, a significant increase in automotive demand in the second half of the 21st century, widespread resupply needs and limited import arbitrage, the U.S. market will remain tight until at least early 2022.” According to Woodworth, current conditions are the foundation for solid performance in the year ahead.
So that’s the background. Now it’s time to find out if Wall Street agrees. Analysts have identified a number of steel companies as possible candidates for share price gains in the 40% to 60% range in the coming months. The habits TipRanks platform, we looked up the details. Here they are, fleshed out with the analyst’s commentary.
ArcelorMittal, based in Luxembourg, is the world’s largest steel producer and a multinational company with operations in 17 countries – and customers in 160. The company is active in all aspects of the steel industry, from iron ore mining to the shipping of finished steel products. A look at the 2020 figures tells the story of the company’s size: 58 million tons of ore mined, 71.5 million tons of crude steel produced and 69.1 million tons of steel shipments. Total revenue last year was $53.3 billion.
Those 2020 numbers, while impressive, represented year-over-year declines due to the delayed operations, reduced demand and disrupted supply chains of the COVID pandemic period. The economic reopening – which is progressing rapidly in the US and Europe – bodes well for ArcelorMittal’s medium-term manufacturing potential.
Last spring and early summer, ArcelorMittal sold its US operations to US company Cleveland-Cliffs (CLF). As part of the closing of that transaction, MT completed a $750 million share repurchase. The buyback returned to shareholders the proceeds of the sale of the company’s 38.2 million Cleveland-Cliffs stock. Total proceeds from the sale of ArcelorMittal USA were over $1.9 billion, and the company returned all of that to shareholders through buyback programs.
About this industrial giant for Deutsche Bank, analyst Bastian Synagowitz points to a combination of factors that should support the stock price in the near term. He writes: “The earnings risk at MT remains positive as: 1) the western world is recovering, 2) China’s changed export policy means a structural change and 3) supply discipline has proved resilient recently. As we expect shareholders to be rewarded with significant direct returns (both dividends and share buybacks), we believe MT’s stock remains very attractive.”
In line with these comments, Synagowitz rates the stock as a buy, and its $43 price target implies a 42% increase over the next 12 months. (To view Synagowitz’s track record, click here.)
For now, shares in ArcelorMittal are selling for $30.19, and the average price target of $42.41 suggests a potential upside of 40% this year. The stock’s Strong Buy consensus score is based on 6 reviews and all are positive, making the consensus unanimous. (Check out ArcelorMittal’s stock analysis on TipRanks.)
schnitzer Steel (SCHNO)
Next up is a big name in the North American scrap metal market. Schnitzer has been in business for more than a century and fills a crucial niche: collecting, collecting, processing and recycling scrap metal. The metal industry offers a unique opportunity for processing companies, because scrap can be recycled, processed into new products and recycled again later. Schnitzer has 94 scrap collection facilities capable of handling 5 million tons of ferrous metals (iron-based, such as steel) per year, along with 600 million pounds of non-ferrous metals. The company operates in the US and Canada and has 7 shipping facilities located on the east and west coasts, plus Puerto Rico and Hawaii. In addition to its scrap buying, recycling and sales operations, Schnitzer also operates 50 stores that sell serviceable used auto parts – a major by-product of car wreckers.
At the end of June, Schnitzer reported financial results for the third quarter, ended May 31, of fiscal year 2021. The report noted strong sequential gains in total sales volume, with gains of 24% in ferrous metals, 15% gain in non-ferrous metals and 12% in finished steel. It was the company’s best quarterly performance since fiscal 2008.
In addition to strong sales gains, Schnitzer also reported high earnings and earnings. On the top end, revenue was reported at $820.7 million, a solid 103% year-over-year increase. Earnings came in at $2.15 a share, a huge gain from the 18 cent loss reported in the same quarter last year.
In addition to solid financial figures, SCHN’s shares have risen over the past year. The share’s appreciation over 12 months is an impressive 178%.
5 star analyst Gus Richard, from Northland Securities, notes several metal industry headwinds that support Schnitzer’s business, adding that the company is particularly well positioned to capitalize on them. Richard writes: “We believe scrap demand is likely to be robust for the foreseeable future, driven by infrastructure spending, the transition to a low-carbon economy, the low carbon footprint of recycled materials and a limited increase in virgin material. SCHN is a leading metal and automotive recycler with a significant NA footprint. We expect multiple expansions as investors recognize SCHN’s ESG credentials.”
Richard sets a price target of $80 for SCHN stock, indicating he is confident of a 64% gain this year. He rates the stock as Outperform (ie a buy). (To view Richard’s track record, click here.)
While there are only 2 recent analyst reviews of Schnitzer, they both agree that this is a stock to buy, resulting in a consensus rating for a moderate buy. The company’s stock is selling for $48.88 and has an average price target of $72, providing upside potential of 47% over the one-year time frame. (Check out Schnitzer’s stock analysis on TipRanks.)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.