5 Reasons this Group May "Steel" the Show
The U.S. steel industry is driven by a variety of factors, including but not limited to:
· Economic growth:When construction, auto manufacturing, and infrastructure are robust, steel demand tends to be strong.
· King Dollar: If the dollar is too strong, U.S. steel exporters are negatively impacted.
· Supply and demand:Excess of steel production can lead to lower prices.
Overall, like most commodities, steel is cyclical but can be affected by other factors. Below are five reasons why the strength in steel stocks is slated to continue:
1. Global Demand is Set to Rise: Most economies worldwide have reopened following the coronavirus pandemic. However, China, the second-largest economy in the world, is just starting to reopen. Furthermore, the Chinese government has stepped in to aid its ailing real estate market in recent weeks. Increased demand from China is bound to move the needle for global demand.
2. Industry Group Strength: The Steel – Producers Industry is currently ranked 9 out of 250 industries tracked by Zacks. Zack’s studies indicate that approximately half of a stock’s performance can be attributed to the performance of the underlying industry group. The Steel – Producer industry also enjoys broad leadership – six stocks in the industry boast the highest possible Zack’s Ranking of 1.
Image Source: Zacks Investment Research
Pictured: The steel group is drastically outperforming the S&p 500 in recent weeks.
3. Technical Breakouts: When multiple stocks within an industry are breaking out simultaneously, it is a good sign for the group.
Steel Dynamics STLD, a top-ranked Zack’s stock, gained a healthy 5.41% Tuesday after breaking back above its 50-day moving average. The stock is set to report earnings on January 5th.
Image Source: Zacks Investment Research
Pictured: STLD is acting strong after breaking out and retaking its 50-day moving average.
Shares of U.S. Steel X, the fifth-largest steel producer in the world and a bellwether for the industry, broke out above resistance in Tuesday’s session and have been showing relative strength versus the overall market. Earnings are slated to be released on January 27th.
Image Source: Zacks Investment Research
Pictured: Large players like U.S. Steel are following suit and breaking out.
Commercial Metals CMC pushed out to new highs Tuesday after stumbling early in the week after reporting earnings. In its most recent earnings call, management informed shareholders that the company is expanding its contract backlog – a potential foreshadowing for other upcoming earnings in U.S. Steel and Steel Dynamics.
Image Source: Zacks Investment Research
Pictured: Healthy earnings are from Commercial Metals is potentially foreshadowing more group strength.
4. Housing and New Construction Demand aren’t that Weak: With rising interest rates and a softening stock market, one would think that housing and construction stocks would be feeling the worst of it. United Rentals URI, a provider of construction equipment and rentals, is seeing strong demand for its products and is attempting to hit new all-time highs – suggesting the thesis is incorrect. The stock earns a highest possible Zack’s Ranking of 1.
Image Source: Zacks Investment Research
Pictured: United Rentals is trying to breakout to 15 year highs - a good sign for construction and the steel industry.
5. Consistent Earnings Performers: Steel Dynamics and its group peers have been consistently surprising on earnings to the upside. STLD has beaten consensus estimates for 12 straight quarters.
Image Source: Zacks Investment Research
Pictured: STLD and other steel stocks have consistently surprised on earnings.
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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
United States Steel Corporation (X) : Free Stock Analysis Report
Commercial Metals Company (CMC) : Free Stock Analysis Report
United Rentals, Inc. (URI) : Free Stock Analysis Report
