Despite the doom and gloom about the trade war between the United States and China, discussion of a big-time infrastructure package for the country is making the rounds in Washington, D.C. While the politicians have all fled to their respective states for the summer recess, and the presidential hopefuls for the Democrats to Iowa, you can bet they are listening closely to constituents who want to see the longest economic expansion ever continue.
A new Jefferies research report says that at the firm’s recent Industrials Conference, the analysts met with management teams from the major steel companies and came away feeling very positive on the set-up for the rest of the year.
The report noted this:
We hosted over a dozen companies from the steel industry at last week’s; Industrials conference. Commentary from mgmt. teams continued to highlight solid underlying demand, with improving fundamentals. In addition, one steel producer noted that while US Hot Rolled Coil prices have recovered following several price hikes, US Hot Rolled Coil remains below a normalized value. We continue to see opportunity for US steel prices to recover in the second half of 2019 driven by a confluence of emerging factors including US/EU capacities, the abating of destocking in response to 232 tariffs, a catch-up trade with scrap vs. iron ore, low US steel imports and seasonal demand improvement which we believe could support improved US steel prices in the near-term.
Five top companies are rated Buy at Jefferies and are good additions to growth portfolios looking for ideas now.
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.
ArcelorMittal investors receive a 1.48% dividend. The Jefferies target price for the stock is $28.80, and the Wall Street consensus estimate is $27.26. Shares closed Monday’s trading at $13.22 apiece.
Cleveland-Cliffs
Jefferies likes this top mining play. Cleveland-Cliffs Inc. (NYSE: CLF) is a mining and natural resources company. It is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The company’s segments include U.S. Iron Ore and Asia Pacific Iron Ore. Operations of the latter are located in Western Australia and consist of its Koolyanobbing operation.
While the company is a pure play iron ore miner, Cleveland-Cliffs offers high leverage to U.S. steel prices and production as U.S. contracts are linked to a mix of seaborne iron ore and U.S. steel prices.
Cleveland-Cliffs investors receive a 2.84% dividend. Jefferies has its price target set at $15 and the posted consensus target is $13.30. The stock closed at $8.17 a share on Monday.
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