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3 Steel Stocks Primed to Gain Over Next Six Months

Piling up steel inventories in China due to weak demand and cooling prices worldwide spell concerns for the steel industry. However, the government’s mandate to use domestic steel in various infrastructure projects is expected to fuel the industry’s growth in the United States. However, steel stocks Usinas Siderúrgicas de Minas Gerais S.A. (USNZY), Friedman Industries (FRD), and Tenaris S.A. (TS) are well-positioned to soar in the upcoming months. Continue reading…

Steel prices are cooling worldwide. Moreover, steel inventory is piling up in China because of slowing demand. However, the U.S. steel industry is poised to witness decent growth as the federal government has mandated the use of domestic steel in its $1 trillion infrastructure plan.

According to a memo released by the White House, the Biden administration has directed federal agencies to make sure that the construction projects being funded under the Infrastructure Investment and Jobs Act (IIJA) use domestically manufactured products, such as iron and steel.

This is expected to be highly beneficial for U.S.-based steel manufacturers as most projects under the IIJA would require high usage of iron and steel. The World Steel Association forecasts the steel demand to reach 1,881.4 MT, representing a 2.2% growth in 2023.

Regardless of the price dynamics, steel stocks Usinas Siderúrgicas de Minas Gerais S.A. (USNZY), Friedman Industries, Incorporated (FRD), and Tenaris S.A. (TS) are well-positioned to soar. Thus, it could be wise to add these to your portfolio.

Usinas Siderúrgicas de Minas Gerais S.A. (USNZY)

Headquartered in Brazil, USNZY is a steel manufacturer engaged in iron ore extraction, steel transformation, production of capital goods, and logistics. The company operates through four segments: Mining and Logistics, Steel Metallurgy, Steel Transformation, and Capital Assets.

In the first quarter ended March 31, 2022, USNZY’s net revenues increased 11% year-over-year to R$7.84 billion ($1.50 billion). Its net income rose 5% from its year-ago value to R$1.26 billion ($240.77 million). The company’s cash and cash equivalents increased 44% from the year-ago value to R$6.60 billion ($1.26 billion) for the same period.

The consensus revenue estimate of $1.80 billion for the fiscal third quarter (ending September 2022) represents a 12.8% improvement year-over-year.

Shares of USNZY have slumped 24.6% over the past month to close the last trading session at $1.75.

USNZY’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It also has an A grade for Momentum and Sentiment, and a B for Value and Quality. Within the A-rated Steel industry, it is ranked #6 out of 34 stocks.

Click here to see USNZY’s Growth and Stability ratings.

Friedman Industries, Incorporated (FRD)

FRD is a manufacturer and processor of steel products with operating plants in Hickman, Arkansas; Decatur, Alabama and Lone Star, Texas. The company operates in two segments: coil products and tubular products.

On May 27, 2022, the company paid its 201st consecutive quarterly cash dividend of $0.02 per share on the common stock to its shareholders. This reflects its strong cash flows.

On May 2, 2022, FRD acquired Plateplus, Inc operations. With this acquisition, the company expands its operations geographically and is expected to serve a larger customer base.

FRD’s net sales increased 173.3% year-over-year to $210.14 million in the nine-month period (ended December 31, 2021). Its net earnings amounted to $21.53 million compared with the year-ago value of $1.02 million. The company’s EPS increased significantly from the year-ago value to $3.12 for the same period.

The stock has declined 6.8% over the past month to close the last trading day at $8.59.

FRD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. FRD also has an A grade for Growth, Value, and Momentum and a B grade for Quality. The stock is ranked #9 in the same industry.

In addition to the POWR Ratings grades I’ve just highlighted, click here to see the FRD ratings for Stability and Sentiment.

Tenaris S.A. (TS)

TS provides seamless and welded steel tubular products and related services to the energy industry. The company offers steel casings, tubing products, mechanical and structural pipes, cold-drawn pipes, sucker rods, coiled tubing, industrial equipment, heat exchangers, and power generation.

During the fiscal 2022 first quarter (ended March 31, 2022), TS’s net sales increased 100.3% year-over-year to $2.37 billion. Its operating income grew 839% from its year-ago value to $484.25 million, while its net income increased 400% year-over-year to $503.43 million. The company’s EPS came in at $0.43, representing a 377.7% increase year-over-year.

Analysts expect TS’s EPS and revenue to increase 82% and 74% year-over-year to $0.84 and $2.66 billion in the fiscal second quarter (ending June 2022). It has surpassed the EPS estimates in each of the trailing four quarters, which is excellent.

Over the past nine months, the stock has gained 29.3% to close Friday’s trading session at $26.07.

The company's overall B rating equates to Buy in our POWR Ratings system. TS also has an A grade for Momentum and a B for Sentiment and Quality. The stock is ranked #13 in the Steel industry.

Click here to see the other ratings of TS for Growth, Value, and Stability.

USNZY shares were trading at $1.85 per share on Monday afternoon, up $0.10 (+5.71%). Year-to-date, USNZY has declined -26.80%, versus a -17.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


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