After slowing demand and inventory reduction measures undertaken last year, the global steel industry is expected to see a recovery in demand this year. Given this backdrop, investors might consider buying fundamentally strong steel stocks such as Companhia Siderúrgica (SID), Reliance (RS) and Acerinox (ANIOY). Read on.
Despite persistent headwinds, the steel industry is expected to expand due to growing demand from developing countries like India, favorable government policies that focus on infrastructure development, rapid urbanization, recovery of demand in China and technological progress.
Given the sector’s bright outlook, it may be wise to consider investing in fundamentally sound steel stocks Companhia Siderúrgica Nacional (SID), Reliance, Inc. (RS) and Acerinox, SA (ANIOY).
Before we delve into the fundamentals of these stocks, let’s understand what is shaping the outlook of the steel industry.
The steel industry is an essential component of the global economy, as steel is used in various applications, including construction, transportation, energy and packaging. The global steel market is expected to grow at a CAGR of 2.8% to reach $1.08 trillion by 2028.
The global steel market took a hit last year when China, the world’s largest steel consumer, saw its economy struggle due to a housing crisis. The steel market also suffered due to weaker growth in several major economies, which led to lower sales.
The reduction in inventories was one of the main reasons why steel companies saw their margins shrink. According to the World Steel Association, global crude steel production was 148.1 million tonnes (Mt) in January 2024, down 1.6% from January 2023.
Top steelmaker ArcelorMittal SA (MT) said that while real demand for steel is likely to remain sluggish this year, apparent demand is showing signs of improvement as inventory drawdown reaches maturity. MT CEO Genuino Christino said global apparent demand for steel, excluding China, is expected to grow 3% to 4% year-on-year in 2024.
China’s economy is expected to continue its recovery with the series of stimulus measures announced by the government expected to support demand growth from infrastructure spending. Steel consumption in China is expected to grow between zero and 2%.
Fitch Ratings believes steel demand growth will continue in most regions, with global consumption rising by 20 million tonnes and 30 million tonnes this year compared to 2023. India will lead demand growth and Turkey will continue its strong recovery. Europe, the United States and Brazil will see demand grow at a moderate pace.
Furthermore, the steel industry is on the brink of a period of transformation, driven by advances in artificial intelligence (AI) and robotics. These technologies have the potential to transform the industry by increasing automation, enhancing quality control, optimizing the supply chain, enabling predictive maintenance and much more.
Steel manufacturers can use artificial intelligence and robotics to improve efficiency, reduce costs and reduce downtime. Investor interest in steel stocks is evident from the VanEck Steel ETF’s (SLX) returns of 17.5% over the past nine months.
With these favorable trends in mind, let’s delve into the fundamentals of the three Steel stock picks, starting with the third pick.
Stock no. 3: Companhia Siderúrgica Nacional (SID)
Headquartered in Sao Paulo, SID is an integrated steel producer in Brazil and Latin America. It operates through five segments: steel, mining, logistics, energy and cement.
SID’s trailing 12-month CAPEX/sales of 8.62% is 13.6% higher than the industry average of 7.59%.
For the fiscal third quarter ended September 30, 2023, SID’s net sales revenue increased 2.1% year-over-year to R$11.13 billion ($2.24 billion). Its gross profit and adjusted EBITDA stood at R$2.81 billion ($565.76 million) and R$2.82 billion ($567.76 million), up 10% respectively. .5% and 3.7% on an annual basis.
In the same quarter, its net profit amounted to R$90.79 million ($18.31 million). As of September 30, 2023, SID’s current liabilities amounted to R$20.68 billion ($4.17 billion), compared to R$21.39 billion ($4.31 billion) as of September 30, 2022.
Street expects SID’s EPS for the quarter ended December 31, 2023 to increase significantly year-over-year to $0.19. Its revenue is expected to increase 8.6% year-over-year to $2.35 billion for the same period. Over the past six months, the stock has gained 34% to close the latest trading session at $3.31.
SID’s POWR ratings reflect this promising outlook. It has an overall rating of B, equivalent to a Buy in our proprietary rating system. POWR Ratings evaluate stocks based on 118 different factors, each with their own weight.
It has a B grade for growth and stability. In the A-rated steel sector, it ranks 15th out of 31 stocks. To view SID’s rating for Value, Momentum, Sentiment and Quality, click here.
Action no. 2: Reliance, Inc. (RS)
RS operates as a diversified metal solutions provider and metal service center company. The company distributes a line of approximately 100,000 metal products and provides metalworking services to general manufacturing, non-residential construction, transportation, aerospace, energy, electronics and semiconductor manufacturing and heavy industry.
On February 14, 2024, RS announced that it has signed a definitive agreement to acquire all outstanding equity interests and related real estate assets of American Alloy Steel, Inc., a leading distributor of specialty carbon steel plate and round bar and bonded, including PVQ material.
This acquisition will expand RS’s product portfolio and market position in the specialty carbon and alloy steel sectors. It is expected to enhance RS’s ability to serve customers in a variety of industries, including energy, defense and manufacturing.
RS’ trailing 12-month ROTA of 12.75% is 350.2% higher than the industry average of 2.83%. Its trailing 12-month ROTC of 12.03% is 137% higher than the industry average of 5.08%. Furthermore, its trailing 12-month ROCE of 18.04% is 190.9% higher than the industry average of 6.20%.
RS’s net sales for the fiscal fourth quarter (ended December 31, 2023) were $3.34 billion, while its operating profit was $325.10 million. The company’s non-GAAP net income attributable to RS and non-GAAP EPS were $274.40 million and $4.73, respectively.
Additionally, the company’s total current liabilities stood at $843.60 million as of December 31, 2023, compared to $1.38 billion as of December 31, 2022.
Over the past nine months, the stock gained 33.8% to close the latest trading session at $320.26.
Not surprisingly, RS has an overall rating of B, equivalent to a Buy in our POWR rating system.
It has a B grade for Sentiment and Quality. He is ranked 14th in the same sector. In addition to the above, we also evaluated RS in terms of growth, value, momentum and stability. Get all RS ratings here.
Stock no. 1: Acerinox, SA (TODAY)
Headquartered in Madrid, Spain, ANIOY produces, processes and markets stainless steel products. Its offering includes cold rolled coils, hot rolled coils, roughing materials, discs, billets and plates.
On February 5, 2024, ANIOY announced that it has entered into a definitive agreement under which Acerinox’s wholly owned U.S. subsidiary, North American Stainless (NAS), will acquire Haynes International, a leading developer, manufacturer and distributor of technologically advanced high-performance products. high performance alloys.
This acquisition will allow Acerinox to expand its product offering and improve its position in the high-performance alloys sector.
ANIOY’s trailing 12-month ROCE of 9.34% is 50.7% higher than the industry average of 6.20%. Its trailing 12-month ROTA of 3.74% is 32.1% higher than the industry average of 2.83%. Furthermore, its trailing 12-month asset turnover ratio of 1.07x is 56.4% higher than the industry average of 0.68x.
ANIOY’s net sales were €1.53 billion ($1.66 billion) in the fiscal fourth quarter ended December 2023. The company’s EBITDA was €96 million ($104.37 million dollars), up 6.7% on an annual basis.
Additionally, as of December 31, 2023, the company’s current liabilities amounted to €1.90 billion ($2.07 billion), compared to €1.95 billion ($2.12 billion) as of December 31, 2022.
For the quarter ended June 30, 2024, ANIOY’s revenue is expected to increase 1.1% year-over-year to $1.95 billion. Over the past six months, the stock gained 5.1% to close the latest trading session at $5.20.
ANIOY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It is ranked 2nd in the steel industry. It has a B grade for value, stability and quality. To see additional ANIOY ratings for Growth, Momentum and Sentiment, click here.
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RS shares were unchanged in premarket trading on Wednesday. Year to date, RS has gained 14.51%, compared to a 6.71% gain in the benchmark S&P 500 index over the same period.
About the author: Rashmi Kumari
Rashmi is passionate about capital markets, asset management and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial issues understandable for individual investors and help them make appropriate investment decisions.
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