The Great Recession was devastating to the steel and iron industry.
A “perfect storm” of factors combined to severely damage the sector. But now with the Chinese economy starting to rebound, so are steel and iron stocks such as ArcelorMittal (NYSE: MT), Nucor Corporation (NYSE: NUE), and United States Steel Corp. (NYSE: X). The rallying American real estate market has also been much-needed good news for these and other companies in the group.
But the bull market for steel and iron stocks still stops and starts in Asia.
The Future of Steel in China
As with so many other commodities, China is the world’s largest consumer of steel. When buildings are soaring in the People’s Republic of China, so is the stock price for steel companies. As an example, ArcelorMittal, the world’s largest steel and iron company, now just under $16, was trading at close to $100 in June 2008, before the onslaught of the Great Recession.
But ArcelorMittal is recovering.
For the last six months, ArcelorMittal is up more than 35%. It is trading at a discount on both a price-to-book and price-to-sales ratio. Earnings-per-share are expected to rise in triple digits next year for ArcelorMittal.
This chapter of recovery is the same for Nucor Corporation and United States Steel Corp., too.
For the last quarter, Nucor Corporation is up more than 10%. Like ArcelorMittal, earnings are expected to increase by more than 100% next year. It is also trading at a discount, as presently offered at its price-to-sales ratio.
United States Steel Corp. has turned to see the best performance, soaring more than 30% for the last quarter. Even with the jump in its price, it is still selling at a significant discount in its price-to-sales ratio. The mean estimate from the analyst community is that earnings-per-share will rise by 169.60% next year.
Investors buy for the future, and that looks positive for only Nucor Corporation based on Wall Street research.
Now trading around $49.50, the mean analyst target price for Nucor Corporation over the next year of market action is $50.55. While financial firms are projecting a triple-digit increase in earnings-per-share for ArcelorMittal and United States Steel Corp., each is trading above the mean analyst target price for the next 52 weeks.
Steel Companies Are Being Targeted by Short Sellers
Now almost $16 a share, the mean analyst target price for ArcelorMittal for the next year is $15.21. United States Steel Corporation is around $23.50. The mean analyst target price for it is $20.28, more than a 10% drop. The short float for ArcelorMittal, those betting the share price will fall, is relatively modest at 3% (a short float of 5% is considered to be troubling for a company). For Nucor Corporation it is only 3.07%.
But for United States Steel Corporation the short float is a stunning 28.55%.
For those looking to buy in the steel sector, Nucor Corporation is a “dividend aristocrat.” As detailed in a previous article on this site, that designation is given to companies that have a history of increasing the dividend yearly. In addition to having a better dividend history and projected future increase in the share price by Wall Street, Nucor is also carrying less debt. Based on those factors and the projections of the analyst community that Nucor Corporation should continue rising in value, it appears to be the most bullish buy in the steel sector.
What are your thoughts on the steel industry and Nucor Corporation specifically?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.