Recently Jorge Beristain appeared on CNBC talking about why steel stocks are a great place for investors to be over the coming months and years. In the interview, he cited many reasons for his bullish outlook on steel and shared 2 steel stocks that his company, Deutsche Bank recently upgraded.
Let’s take a look at the reasons behind his bullish outlook as well as the 2 steel stocks his firm is recommending investors begin to accumulate shares in.
Reasons To Be Bullish On Steel Stocks
In the interview, Jorge Beristain highlighted 2 reasons for the upgrade to steel stocks. First, year to date price performance for these stocks has been weak. He feels that there is room for growth in the stock prices simply because of weak performance of the stocks.
Second, he cites Section 232, which is from the Department of Commerce that would block imports of steel on a case by case basis based on national security. The goal of this would be to keep steel imports at bay.
Year to date, imports of steel have risen by 14%. By slowing the rise of importing of steel, domestic steel companies can better compete here in the U.S.
Overall, he notes a three prong analysis of why steel stocks should outperform the market in the near and long term.
- Short-term: Section 232 blocking some imports of steel.
- Medium-term: FAST Act of 2015 which is a spending bill for upgrading the nation’s highways and bridges
- Long-term: Pro business policies passed by the Trump administration.
Currently, demand for steel is up 4% for the year and Section 232 would boost domestic steel producers to a larger cut of this growing market.
2 Steel Stocks To Buy
As mentioned, Mr. Beristain upgraded 2 steel stocks in this interview. The first was US Steel (NYSE: X). This is a company I wrote about recently. I didn’t like where US Steel stands today and don’t like their prospects moving forward even more with the drafting of Section 232.
US Steel has too many issues at the moment and Section 232 would only help temporarily. There is no reason to think that foreign countries couldn’t produce similar tariffs or taxes on steel imports that would hurt US Steel.
The second stock that was upgraded was AK Steel (NYSE: AKS). This company mainly produces steel for automakers.
The company recently restructured some of its debt and issued new shares of stock, both of which greatly helped to improve its balance sheet.
In their most recent earnings release, AK Steel reported earnings per share of $0.19 which beat estimates and revenue of $1.53 billion, an increase of 0.7%.
While improving a balance sheet and beating estimates are a good thing, reports show that auto sales have peaked and are now on the decline. As such, the future growth prospects for AK Steel aren’t as bright as they might have been a few years ago.
The stock price is low and has some room to rise, but not so much that I would agree with the upgrading of the stock based on the analysis of Mr. Beristain.
I will agree that Section 232 can help steel stocks somewhat in the short term, but the issues with the stocks overall are more long term in nature. While government policies can and will help to spur growth, in reality, many times they simply delay companies from doing the things they need to do, like upgrade their own infrastructure in US Steel’s case.
Had this upgrade recommendation in these two stocks had come a few years earlier, I might agree with the analysis. But right now, I feel that the ship has sailed on these two steel stocks. You are better of putting your money elsewhere.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.