Despite some of the scorn and shade thrown at the president when he suggested the potential for steel tariffs, he’s hardly the first president to call for or implement them. Despite the concerns of Chinese dumping, as China is the world’s largest steel producer, the bulk of steel and aluminum imports come from Canada. A whopping 88% of Canada’s production came to the United States in 2016.
Yesterday, the U.S. president implemented steel and aluminum Section 232 tariffs, which excluded Canada and Mexico, and the United States looks to support a hot-rolled coil price above $837 on broad tariffs, versus the spot of $800. That said, the analysts at Jefferies expect domestic capacity growth to be restarted, as well as the mini-mills, and that could dampen some of the price increases.
The firm has numerous top U.S. and European steel stocks rated Buy, but here we focus on four that look the best for growth accounts with some risk tolerance. These stocks got hit late in the trading day on Thursday, when the exclusions of Canada and Mexico were announced, so the points of entry are more enticing.
ArcelorMittal
This is the top pick at Jefferies and makes a solid holding. ArcelorMittal S.A. (NYSE: MT) is the self-described world’s leading steel and mining company, with a presence in 60 countries and an industrial footprint in 19. The company was formed from the merger of Arcelor and Mittal Steel in 2006. It is the leader in all major global markets, including automotive, construction, household appliances and packaging. Its industrial presence in Europe, Asia, Africa and America gives it exposure to all the key steel markets, from emerging to mature.
The company is also one of the world’s five largest producers of iron ore and metallurgical coal and the mining business is an essential part of the corporate growth strategy. With a geographically diversified portfolio of iron ore and coal assets, ArcelorMittal is strategically positioned to serve its network of steel plants and the external global market. While its steel operations are important customers, the company’s supply to the external market is increasing rapidly.
The Jefferies price target for the stock is $42, and the Wall Street consensus target was last seen at $41.55. The stock closed Thursday’s trading at $32.64 per share.
Nucor
This top steel company could do very well if the economy continues to pick up and the administration’s infrastructure push comes back to the forefront. Nucor Corp. (NYSE: NUE) is one of North America’s largest steel producers, with almost 27 million tons of finished steel capacity at 23 mini-mills throughout the United States. The company’s downstream steel products business includes rebar fabrication, steel joists/deck, cold finished bars, fasteners, building systems and wire mesh. Nucor also has 5 million tons of scrap processing capacity.
Nucor has always kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially if a huge infrastructure build-out becomes a reality. Some think that continued demand from the rebuilding of large parts of Houston after Hurricane Harvey and storm damage in Florida could also be a positive.
Nucor investors are paid a very solid 2.24% dividend. Jefferies has a price target for the shares of $76. That compares with the posted consensus price target of $74.54. The stock closed most recently at $67.63 a share.
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