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Investing Idea: Steel Stocks


Are you searching through the market trying to find a stock that is actually cheap? If so, then you should turn your attention to the basic material sectors. The steel industry is serving up some great stocks that are trading at multiples not seen in years. While gold and copper stocks are trading near their 52-week highs, many steel company names are still undervalued. Aggressive investors and value investors can pick up quality steel companies that are trading at distressed prices.

US Steel Corporation (X)

The nation’s largest steel manufacturer has been beaten down by the economic slowdown. This stock was one of the biggest plungers with shares falling from the $180’s to the teens. US Steel looks like a solid large cap value play at just $42 per share. Shares have slumped giving investors a chance to buy a great company at just 7 times next year’s earning estimates. US Steel is expected to grow a robust 30% over the next 5 years. Shares are trading right at 1.5 times book value. It may take awhile for a global recovery to truly kick in but when it does US Steel will be one of the biggest beneficiaries. This is my favorite stock in the steel sector.

AK Steel (AKS)

Extreme risk takers should take a look at AK Steel. AK Steel is the ultimate high risk high reward company. Shares are trading only 10% above their 52 week low. The stock is currently valued at 8 times 2011 earnings estimates. The main issue with AK Steel is that it can be difficult to gauge the company’s earnings because company management has a reputation for surprising to the downside. The stock has been punished because AK Steel has continually guided lower over the past few months due to rising input prices. Growth is expected to come in at 10% for the next few years. At just $14 a share, AK Steel may be worth taking a shot on.

Reliance Steel (RS)

Reliance Steel has been strengthening its position in the metals industry by gobbling up smaller players over the past few years. Reliance Steel is an integrated metals processing company that distributes over 60,000 metal products including steel, aluminum, titanium, and copper. It’s a midcap stock with a market cap of $3 billion dollars and trading at just 9 times next year’s earnings. Reliance has taken on about a billion dollars in debt from its acquisitions but the company should be able to reduce this rather quickly with its huge cash flows. The company is a classic Ben Graham play with a share price at just 1.2 times book value.

Nucor (NUE)

Nucor is a Jim Cramer favorite and is one of the safest plays in the steel sector. He has been championing the cause of Nucor for sometime on Mad Money. Nucor has a solid balance sheet with over $2 billion in cash and pays a generous dividend that currently yields 3.5%.

The stock trades at 11 times earnings and earnings are expected to grow at a 15% clip for the next 5 years. Nucor is a solid stock for investors looking for a combination of growth and income.

What is your favorite company in the steel sector?

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Comments

  1. Good picks. Since they’re headquartered in the same city I live in, I have to mention Steel Dynamics (STLD) as my favorite.

  2. I also want to suggest ArcelorMittal (MT). It is a global steel producer with solid fundamentals.