Beginning the new year, the basic materials sector may be an area to scope out for opportunity in the stock market. Specifically, steel producers look attractive as they are critical to U.S. manufacturing with many steel-consuming industries having a resurgence upon easing inflation and higher demand.
Notably, the Zacks Steel-Producers Industry is currently in the top 17% of over 250 Zacks industries and several companies in the space covet spots on the Zacks Rank #1 (Strong Buy) list. Here is a look at three of these highly-ranked steel producer stocks that investors may want to consider as we start 2024.
United States Steel’s X Acquisition
United States Steel’s stock is certainly intriguing as the company has agreed to be acquired by Japanese steel producer Nippon Steel for $55 a share, which is still 14% above current levels. Being acquired by a foreign enterprise is likely to face scrutiny as United States Steel is a historic and crucial company to domestic manufacturing but the deal is valued at over $14 billion and expected to close during the second quarter of the year.
With or without the deal the trend of earnings estimate revisions is appealing for United States Steel. To that point, fiscal 2023 earnings estimates are up 4% over the last 60 days while FY24 EPS estimates have soared 26% from projections of $2.43 a share to $3.06 per share. The rising EPS estimates offer further support to United States Steel’s reasonable 15.9X forward earnings multiple.
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Steel Producers with Sound Growth & Expansion
In regards to growth, Steel Dynamics STLD and Universal Stainless & Alloy Products USAP are very attractive at the moment.
As one of the nation’s leading steel producers and metal recyclers, Steel Dynamics’ has experienced considerable expansion in recent years. It’s noteworthy that FY23 and FY24 EPS estimates have started to trend higher over the last 30 days despite a dip naturally expected in the company’s bottom line after a record year that saw earnings at a whopping $22.68 per share in 2022.
Interestingly enough, FY24 EPS projections of $10.49 per share would still represent 238% growth over the last five years with earnings at $3.10 a share in 2020. Steel Dynamics stock is up +24% over the last year and has now soared +294% in the last five years. Furthermore, Steel Dynamics stock still trades at just 8X forward earnings which is a slight discount to the Zacks Steel-Producers Industry average of 9.7X and well below the S&P 500’s 20.6X.
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As for Universal Stainless & Alloy, the company is reaching new heights in terms of its post-pandemic growth and recovery. As a manufacturer and marketer of semi-finished specialty steels, annual earnings are now anticipated at $0.52 a share; climb swinging from an adjusted loss of -$0.74 a share in 2022. Even better, FY24 earnings are forecasted to skyrocket another 188% to $1.50 a share.
The company’s top line growth is also starting to stand out with Universal Stainless & Alloy expected to round out FY23 with total sales up 38% to $279.32 million. Plus, FY24 sales are forecasted to rise another 7% to $298.5 million and would be 16% above pre-pandemic levels with sales at $256 million in 2019.
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Takeaway
Garnishing their spots on the coveted Zacks Rank #1 (Strong Buy) list this week, the strengthening outlooks of these steel producers are hard to overlook as they look poised to outperform the broader market in the near future.
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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
United States Steel Corporation (X) : Free Stock Analysis Report
Universal Stainless & Alloy Products, Inc. (USAP) : Free Stock Analysis Report
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