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4 Steel Stocks to Reinforce Your Portfolio Before Q1 Earnings


The steel industry is gaining from a cyclical upturn in steel demand on the back of strong economic momentum across advanced and developing economies. Steel makers are also gaining from a recovery in steel prices. In particular, steel prices are on an upswing in the United States on the back of the Trump administration’s trade actions to curb imports, reflected by the recent run-up in hot-rolled and cold-rolled steel prices.

Continued momentum in the automotive space and a recovery across housing and commercial construction markets have been other key tailwinds for the steel industry. The construction and automotive industries will continue to be the mainstays of the steel industry.

Trump Trade Tariffs Instil Optimism

President Donald Trump’s protectionist trade actions should provide more protection to the American steel industry. The Trump administration, last month, slapped a 25% tariff on steel imports aimed at protecting the U.S. steel industry which had long struggled to cope with a tide of subsidized foreign imports.

The trade tariffs have provided a much-needed reprieve to the U.S. steel makers. The tariffs are expected to lead to lower imports into the United States, which would in turn boost demand for American steel and drive profitability of domestic steel makers.

The hefty tariffs would lead to a spurt in steel prices and give American steel producers more pricing power. In fact, U.S. steel prices are on an uptrend following the trade tariff announcement. Higher steel prices should drive the performance of U.S. steel makers in the first quarter.

Industry Performance & Earnings Prospects

The Zacks Steel Producers industry has outperformed the broader market (S&P 500) in a year’s time. The industry has gained around 15.7% in this period, topping the S&P 500’s corresponding return of around 11.4%.

Per the Zacks Industry classification, the steel industry is grouped under the broader Basic Materials sector. The Basic Materials sector is among the Zacks sectors that scored the strongest gains in fourth-quarter 2017. Overall earnings for the sector climbed 45.2% while revenues spiked 21.3%. Roughly 89.5% of the sector participants posted earnings beat and around 73.7% surpassed revenue estimates.

The Basic Materials sector is expected to continue the earnings growth momentum into first-quarter 2018. Earnings for the sector are projected to surge 41.4% in the first quarter while revenues are expected to go up 20.2%, per our latest Earnings Preview.

Picking the Winning Stocks

The steel industry has staged a recovery after remaining in limbo for long. While the industry still faces a few challenges including continued surge in production in China and low capacity utilization, the industry’s upturn is expected to continue on the back of a resurgent global economy and an improvement in overall demand and pricing fundamentals for steel.

President Trump’s recent imposition of tariffs on steel imports is also a welcome relief to U.S. steel players. Moreover, Trump’s plans for colossal infrastructure spending — one of his key campaign promises — will be a catalyst for American steel makers as it is likely to have a beneficial effect on the U.S. steel industry given the expected increase in steel consumption.

Amid this backdrop, a sneak peek at the space for some potential winners backed by a solid Zacks Rank could be a great idea for investors looking to gain from the first-quarter earnings season.

With the help of the Zacks Stock Screener, we have shortlisted steel stocks that have an estimated year over year earnings per share (EPS) growth of 10% or more for the to-be-reported quarter. Further, these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

4 Solid Steel Stocks to Scoop Up

Below we discuss four steel stocks that are worth investing in before the first-quarter earnings season hits full throttle.

United States Steel Corporation X

Pittsburgh, PA-based U.S. Steel sports a Zacks Rank #1. The company has an expected EPS growth of 134.9% for the first quarter. Earnings estimates for the first quarter have been revised 11.5% upward over the last 30 days. The stock also has an expected earnings growth of 156.7% for the current year. The company has also gained around 40% over the past six months.

Steel Dynamics, Inc. STLD

Indiana-based Steel Dynamics is another solid choice carrying a Zacks Rank #1. It has an expected EPS growth 15.9% for the first quarter. Moreover, earnings are expected to register a 62.4% growth in 2018. Steel Dynamics has also gained around 25% over the past six months. Moreover, the stock has an expected long-term EPS growth rate of 12%.

Tenaris S.A. TS

Our next pick in the space is Luxembourg-based Tenaris armed with a Zacks Rank #1. The company has an expected EPS growth of 42.1% for the first quarter. It beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of around 173%. The stock also has an expected earnings growth of 44.2% for 2018. The company has also gained around 34% over the past six months.

Allegheny Technologies Inc. ATI

Pittsburgh-based Allegheny is another attractive choice with a Zacks Rank #1. The company has an estimated EPS growth of 43.8% for the first quarter. It also racked up positive earnings surprise in three of the trailing four quarters, delivering an average beat of 41.7%. The stock also has an expected earnings growth of 162.5% for 2018.

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