5 Best Steel Stocks to Buy in July 2021
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Steel stocks have outperformed in 2021 amid the rally in metals and mining stocks. However, most of them are now off their highs even as the US stock markets are trading near record levels. What’re the five best steel stocks that you should buy in July 2021?
US steel prices are hovering near their all-time highs and domestic mills are posting record earnings. Notably, the earnings of metals and mining companies are mainly dependent on shipments, unit cash costs, and finished metal prices. Metal prices are the biggest price driver and tend to be the biggest earnings driver.
1. U.S. Steel Corporation (NYSE: X)
U.S. Steel Corporation stock has three business segments which are the U.S. Flat-Rolled, Tubular, and Europe divisions. The Flat-Rolled segment is the company’s biggest segment and produces products like hot roll coil, cold roll coil, and galvanized steel. These products are used in industries ranging from appliances, automotive, and defense. The Tubular segment was a laggard over the last few years but its fortunes should rebound now with the rise in crude oil prices.
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Technical and fundamental analysis
X stock is looking bullish on the charts. It is trading above the 30-day, 100-day, and 200-day SMA (simple moving average). However, it is facing resistance at the 50-day SMA which is currently at $25.15. If X stock can cross above the 50-day SMA it would strengthen the uptrend. The 12,26 MACD (moving average convergence divergence) also gives a buy indicator. The 14-day RSI (relative strength index) is 53.8 which indicates neither overbought nor oversold positions.
X stock a good steel stock to buy in July
Looking at the fundamentals, X stock trades at an NTM (next-12 months) EV (enterprise value)-to-EBITDA (earnings before interest tax, depreciation, and amortization) of 2.43x which looks attractive. While the valuation multiples for commodity companies tend to peak near the cyclical peaks, the current valuations look too cheap to ignore.
There are several company-specific factors at play in X stock including the pivot towards EAFs (electric arc furnaces), structural improvement in earnings after the asset revitalization plan completion, and deleveraging opportunities amid the steel upcycle. The stock is down over 16% from the highs and the dip could be a good buying opportunity.
2. Commercial Metals Company (NYSE: CMC)
Commercial Metals Company has operations in America, Europe, and Asia. Along with steel operations, the company also has recycling operations. The company is the largest manufacturer and fabricator of steel reinforcing bars in the US. The demand for these products should rebound amid President Biden’s infrastructure plans.
Technical analysis
CMC stock is trading in a narrow price channel between the 50-day and 100-day SMA. The 50-day SMA, currently at $31.50 is a resistance channel while the 100-day SMA which is currently at $30.10 has been strong support. The stock is also trading below the 30-day SMA. It has a 14-day RSI of 51.29 which is a neutral indicator but the MACD gives a buy indicator. Overall, the stock looks somewhat bullish on the charts. CMC stock is up almost 53% so far in 2021 and the strong steel market conditions bode well for the stock.
CMC stock is trading at an NTM EV-to-EBITDA multiple of 5.8x. The stock has a dividend yield of 1.54% which is slightly higher than the S&P 500’s dividend yield. CMC looks like a good stock to buy in July and bet on the steel industry’s upcycle and Biden’s infrastructure investments.
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3. Reliance Steel & Aluminum (NYSE: RS)
Reliance Steel & Aluminum is not a metal producer but operates metal service centers. It is the largest metal service center in North America. The company offers over 100,000 metal products spread across plates, bars, oil, channel, and angles. Metal service centers act as a distribution channel for big steel companies. While larger metal buyers source their needs directly from the producers, smaller steel buyers prefer to deal with service centers.
Technical analysis
RS stock is not looking too bullish on the charts. The stock is trading below its 10-day, 30-day, 50-day, and 100-day SMA. The stock has been facing resistance at the 100-day SMA which it has failed to breach since it fell below the level in June. The 14-day RSI of 44.7 is a neutral indicator. The stock trades at an NTM EV-to-EBITDA multiple of 7.2x which looks reasonable.
Why RS looks a good steel play
While RS is not a primary metal producer it’s a play on the steel and aluminum demand. RS stock is up almost 28% so far in 2021. While it is outperforming the broader markets, its underperforming steel mills which have high leverage to steel prices. That said, RS is a proxy and differentiated way to play the steel industry.
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4. Cleveland-Cliffs (NYSE: CLF)
Cleveland-Cliffs morphed into a steel company when it acquired AK Steel in 2019. The company continued its acquisition spree and acquired the US assets of ArcelorMittal. Both these companies were the biggest customers for CLF and it went for a forward integration by acquiring its major customers.
The acquisitions look well-timed in hindsight and the steel industry has been in a cyclical uptrend. CLF’s integrated operations and the HBI (hot briquetted iron) plant make it an attractive proposition. CLF trades at an NTM EV-to-EBITDA of around 3x which looks like an attractive entry point.
CLF looks like a good steel stock to buy in July
CLF stock is looking bullish on the charts and trades above its 10-day, 30-day, 50-day, and 200-day SMA. The MACD level also gives a buy indicator while the 14-day RSI is neutral. The stock has strong support at its 50-day SMA which is currently at $20.69. CLF stock is only marginally shy of its 52-week highs of $24.77 and looking at the upwards momentum, it could soon breach the previous high that it made amid pumping from Reddit traders.
CLF has a strong management team led by the aggressive CEO Lourenco Goncalves. The stock looks a good buy in July 2021 amid the technical uptrend.
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5. Nucor (NYSE: NUE)
Nucor is the largest US-based steel company. The company has delivered good returns across the steel cycle and is also outperforming most peers in 2021. It has a history of investing in downcycles and these investments pay off in the upcycle. Nucor has an investment-grade credit rating which it has maintained across the cycle. The company is also a consistent dividend payer. Given its exposure to rebars, Nucor is also a play on the recovery in the non-residential construction industry.
Nucor looks like a good steel stock to buy
Nucor trades at an NTM EV-to-EBITDA multiple of 4.3x which is higher than its peers. However, given its higher margins and strong balance sheet, NUE has historically traded at a peer to steel peers. Looking at the technicals, the stock trades below the 30-day and 50-day SMA. It however trades above the 100-day and 200-day SMAs. The 50-day SMA has been a strong resistance for the stock.
Meanwhile, if you are looking at a steel stock to hold for the long term, NUE will fit the bill. The stock has a dividend yield of 1.66% which is higher than the S&P 500’s dividend yield. The stock could also interest investors looking at stable dividend stocks.
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