Champion Iron, Reliance Steel, and Steel Dynamics lead industry in revenue growth
Steel companies, including Champion Iron Ltd., Reliance Steel & Aluminum Co., and Steel Dynamics Inc., are leading peers in revenue growth at a time when high interest rates and recession fears weigh on steel demand and temper the industry's rebound from Covid-19 disruptions. 4x4 Aluminum Tubing
Nonetheless, steel stocks have slightly outperformed the broader market over the past year. A key benchmark, the VanEck Vectors Steel ETF (SLX), rose 2% in the past 12 months, while the Russell 1000 Index ended the last 12-month period unchanged.
We look at the top three steel stocks in three categories: the best value, the fastest growth, and the best performance. All data are as of May 1.
These are the steel stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.
These are the top steel stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.
These are the steel stocks that had the highest total return over the last 12 months.
U.S. steel imports from many countries have been subject to a 25% tariff since March 2018, when former President Donald Trump imposed the duty in the name of national security under Section 232 of the Trade Expansion Act of 1962. The White House introduced the tariffs to protect the U.S. steel industry, which at the time faced challenges from an oversupply of cheaper imported steel. Proponents of the tariffs argue that they increased domestic steel mill utilization from around 70% in 2018 to 85% in 2022, while critics say the levies increased steel prices and hurt U.S. manufacturers in the construction and automotive industries.
From a performance standpoint, steel tariffs have boosted the profits of U.S. steel producers, with leading industry names U.S. Steel, Nucor Corporation (NUE), and Steel Dynamics all reporting record profits in the years since their imposition. The VanEck Steel ETF has returned 50% since the beginning of March 2018, generating similar gains to the Dow Jones Industrial Average (DJIA) during the same period.
Increased Infrastructure Spending: Steel stocks stand to benefit from increased federal infrastructure spending. In November 2021, lawmakers passed a $1.2 trillion infrastructure package, allocating a significant investment to upgrade the nation's roads, bridges, and railways over the next five years. Moreover, President Joe Biden has mandated that infrastructure upgrades and projects use American steel—a boon for U.S. steel-producing companies.
Attractive Valuations: As of May 2023, steel stocks trade at attractive valuations compared with their historical averages. For instance, Nucor's share price is also down by 5% percent over the past 12 months, leaving it with a PE ratio of 5.7, well below its 2020 high of about 40. Likewise, Pittsburg-based U.S. Steel is down 28% over the past 12 months. Additionally, U.S Steel has grown its cash pile considerably over the past year, positioning both producers for operational expansion should they choose.
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