Seaport Global Says The Steel Industry Is Due For A Bounce

Steel stocks have been in focus in 2018 after the steel industry was one of the first to be dragged into the global trade war.

Steel stocks have run out of steam in recent months, but one analyst says the steel industry is due for a bounce.

The Analyst

On Thursday, Seaport Global analyst Derek Hernandez initiated coverage of the following five steel stocks:

• Nucor Corporation (NYSE: NUE) - Buy rating, $75 price target.
• Steel Dynamics, Inc. (NASDAQ: STLD) - Buy rating, $55 price target.
• United States Steel Corporation (NYSE: X) - Buy rating, $35 price target.
• AK Steel Holding Corporation (NYSE: AKS) - Neutral rating, $5 price target.
• Commercial Metals Company (NYSE: CMC) - Neutral rating, $20 price target.

The Thesis

U.S. policy uncertainty and recent declines in forward steel pricing have outweighed the bullish outlook for long-term global steel demand as of late.

“Despite elevated earnings in 2018, valuations have pulled back significantly in recent months as doubt and insecurity have followed the year’s early exuberance. We view this pullback as an opportunity to buy market leaders,” Hernandez wrote in the note.

Hernandez expects the Trump administration to continue to support the U.S. steel industry via Section 232 tariffs through at least 2020, despite investor concerns that an end to the Section 232 tariffs are always only a tweet away. While Hernandez says the steel tariffs are certainly on the table as a trade war bargaining chip, Trump would likely replace the tariffs with quotas in the event he agrees to drop them.

While Hernandez is bullish on the U.S. steel space overall, he said Nucor is his top stock pick given its strong balance sheet, organic growth initiatives and potential for acquisitions.

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