Last year's unprecedented market volatility profoundly impacted the steel industry. However, with China's economic resurgence and the U.S. government's renewed dedication to infrastructure development, an increase in steel demand is projected.
Given this backdrop, fundamentally strong steel stocks Companhia Siderúrgica Nacional (SID), BlueScope Steel Limited (BLSFY), and Voestalpine AG (VLPNY) could be solid buys now. Before delving into an in-depth analysis of the stocks, let’s first consider the imminent growth prospects emerging within the broader steel industry.
As the backbone of contemporary industries and economies, steel furnishes an irreplaceable component for enhancing infrastructure, vehicle manufacturing, and creating various other appliances integral to everyday life.
Growing industrialization and urbanization could augment steel demand, potentially mitigating the negative impacts of broader macroeconomic challenges. An escalating demand from the construction sector, coupled with a revival in auto production, is anticipated to fuel growth in the steel industry in the foreseeable future.
According to the World Steel Association, global steel demand is forecasted to increase by 2.3% and 1.7% in 2023 and 2024, respectively. Concurrently, the U.S. steel demand is projected to grow by 1.3% in 2023, followed by a steeper increase of 2.5% in 2024.
Furthermore, implementing the Biden administration's Infrastructure Law could invigorate the U.S. economy, positively impacting steel production, demand, and consumption sectors. The global steel market is projected to grow at a CAGR of 3.9% by 2033, indicating a promising trend for domestic and international steel entities.
With these favorable trends in mind, let's delve into the fundamentals of the three Steel stock picks, beginning with the third choice.
Stock #3: Companhia Siderúrgica Nacional (SID)
Headquartered in São Paulo, SID is an integrated steel producer in Brazil and Latin America. It operates through five segments: Steel; Mining; Logistics; Energy; and Cement.
Its annualized dividend rate of $0.22 per share translates to a dividend yield of 10.04% on the current share price. Its four-year average yield is 9.26%. SID’s dividend payments have grown at a CAGR of 45.4% over the past three years.
SID’s trailing-12-month cash from operations of $980.49 million is 170.9% higher than the industry average of $361.89 million, while its trailing-12-month CAPEX/Sales of 7.82% is 9.8% higher than the industry average of 7.12%.
For the fiscal second quarter that ended June 30, 2023, SID’s net sales revenue increased 4% year-over-year to R$10.99 billion ($2.19 billion). Its gross profit and net profit stood at R$2.24 billion ($447.20 million) and R$283.30 million ($56.47 million), respectively.
For the same quarter, its adjusted EBITDA stood at R$2.26 billion ($451.10 million). As of June 30, 2023, SID’s current liabilities stood at R$18.53 billion ($3.69 billion), compared to R$18.89 billion ($3.77 billion) as of June 30, 2022.
Street expects SID’s revenue in the fiscal third quarter ending September 2023 to increase 4.6% year-over-year to $2.23 billion. For the fiscal year ending December 2023, its EPS is expected to come at $0.02, while its revenue is expected to increase 1.6% year-over-year to $8.78 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 1.6% over the past five days to close the last trading session at $2.24.
SID’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum and Stability. Within the A-rated 32-stock Steel industry, it is ranked #12.
To see additional POWR Ratings for Growth, Value, Sentiment, and Quality for SID, click here.
Stock #2: BlueScope Steel Limited (BLSFY)
Headquartered in Melbourne, Australia, BLSFY produces and sells metal-coated and painted steel building products. The company operates through five segments: Australian Steel Products; North Star BlueScope Steel; Coated Products Asia; Buildings and Coated Products North America; and New Zealand & Pacific Islands.
On August 11, BLSFY invested $415 million to expand its metal coating capacity at its Erskine Park, NSW site. The additional metal coating line (MCL7) will have the capacity to produce up to 240kt per annum of BLSFY’s value-added metal-coated products. This significant investment in Australian manufacturing will better enable the steel producer to meet customers’ growing demand for steel building and construction products.
Its annualized dividend rate of $1.63 per share translates to a dividend yield of 2.81% on the current share price. Its four-year average yield is 1.89%. BLSFY’s dividend payments have grown at CAGRs of 51.6% and 26% over the past three and five years, respectively.
BLSFY’s trailing-12-month cash from operations of $1.43 billion is 295.9% higher than the industry average of $361.89 million. Its trailing-12-month gross profit and levered FCF margins of 36.59% and 5.32% are 30.9% and 35.1% higher than the industry averages of 27.95% and 3.94%, respectively.
For the fiscal year that ended June 30, 2023, BLSFY’s total revenue from continuing operations stood at A$18.24 billion ($11.61 billion). Its profit for the year and earnings per share were A$1.10 billion ($699.31) and A$215.80, respectively. As of June 30, 2023, BLSFY’s total current liabilities stood at A$3.47 billion ($2.21 billion), compared to A$4.74 billion ($3.02 billion) as of June 30, 2022.
Street expects BLSFY’s revenue for the fiscal year ending June 2024 to be $11.23 billion.
The stock has gained 2.6% year-to-date to close the last trading session at $57.99. Over the past year, it gained 14%.
BLSFY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BLSFY has a B grade for Value, Momentum, Stability, and Quality. Within the same industry, it is ranked #8.
Beyond what we’ve stated above, we have also rated the stock for Growth and Sentiment. Get all ratings of BLSFY here.
Stock #1: Voestalpine AG (VLPNY)
VLPNY, headquartered in Linz, Austria, processes, develops, manufactures, and markets steel products. The company operates through five segments: Steel; High Performance Metals; Metal Engineering; Metal Forming; and Other.
On October 23, VLPNY acquired Torri S.P.A., the warehouse and racking specialist, to strengthen its market position in storage systems. This acquisition would allow the steel manufacturer to vigorously pursue its strategy of offering complex storage systems from a single source, from initial development to final assembly. It would enable VLPNY to better serve the Southern European market and create more added value for its existing customers.
On October 18, VLPNY opened the world’s most advanced steel plant in Kapfenberg, with a production capacity of 205,000 tons of special steel for highly sophisticated customer segments. This investment would allow VLPNY to enhance its competitiveness in the global market and aid in maintaining prosperity and jobs in the region over the long term.
Its annualized dividend rate of $0.34 per share translates to a dividend yield of 7.06% on the current share price. Its four-year average yield is 3.16%. VLPNY’s dividend payments have grown at a 95.2% CAGR over the past three years.
VLPNY’s trailing-12-month cash from operations of $1.66 billion is 357.4% higher than the industry average of $361.89 million. Its trailing-12-month ROCE and ROTC of 8.52% and 6.66% are 5.1% and 19.5% higher than the industry averages of 8.11% and 5.57%, respectively.
For the fiscal first quarter that ended June 30, 2023, VLPNY’s revenue and gross profit stood at €4.45 billion ($4.71 billion) and €816.20 million ($864.12 million), respectively.
For the same quarter, its profit after tax and earnings per share stood at €218.20 million ($231.01 million) and €1, respectively. As of June 30, 2023, VLPNY’s current liabilities stood at €5.57 billion ($5.90 billion), compared to €5.95 billion ($6.30 billion) as of March 31, 2023.
Street expects VLPNY’s revenue in the fiscal second quarter ending September 2023 to be $4.26 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 9.9% over the past year to close the last trading session at $4.77. Over the past five days, it gained 1.3%.
VLPNY’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
VLPNY has an A grade for Value and Stability and a B for Momentum and Quality. It is ranked #6 within the Steel industry.
Click here for the additional POWR Ratings for VLPNY (Growth and Sentiment).
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BLSFY shares were trading at $57.99 per share on Tuesday afternoon, up $0.94 (+1.65%). Year-to-date, BLSFY has declined -3.22%, versus a 10.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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