Steel demand has been under pressure since last year due to persistent inflation, high-interest rates, and the lockdowns in China. However, as inflation eases and with the end of the Fed’s interest rate hikes in sight and China reopening its economy, steel demand could rebound.
To that end, it could be wise to invest in fundamentally strong steel stocks Reliance Steel & Aluminum Co. (RS) and Voestalpine AG (VLPNY).
Steel demand had weakened last year as high inflation and rising interest rates put pressure on most steel-consuming sectors such as automobile, housing, manufacturing, etc.
However, as mortgage rates slide, the demand for housing is expected to boost steel demand. Moreover, automobile sales are expected to pick up this year.
The steel industry is also likely to benefit from the infrastructure projects undertaken by the government under the Infrastructure Investment and Jobs Act (IIJA), which will provide $550 billion to improve the country’s infrastructure.
With China’s reopening, its steel demand is expected to grow by 2% this year. The World Steel Association forecast that steel demand will rebound 2.3% to reach 1,822.3 Mt. in 2023. It also expects steel demand to grow by 1.7% in 2024 to reach 1,854 Mt.
The global steel market is expected to reach above $910 billion by 2029, growing at 5.4% CAGR. Moreover, investors’ interest in steel stocks is evident from the VanEck Steel ETF’s (SLX) 14.8% returns over the past six months.
Considering these factors, investors could consider investing in the featured stocks.
Reliance Steel & Aluminum Co. (RS)
RS operates as a diversified metal solutions provider and metals service center company. The company distributes a line of approximately 100,000 metal products and provides metals processing services to general manufacturing, non-residential construction, transportation, aerospace, energy, electronics and semiconductor fabrication, and heavy industries.
On May 01, 2023, RS announced that it had acquired all the outstanding equity interests of Southern Steel Supply, LLC, a metals service center.
RS’ President and Chief Executive Officer, Karla Lewis, commented, “Southern Steel’s reputation for on-time delivery and superior customer service aligns well with our business model and disciplined methodology of acquiring high-quality companies with strong management teams that expand Reliance’s geographic footprint and value-added processing capabilities.”
In terms of the trailing-12-month EBIT margin, RS’ 14.01% is 16.5% higher than the 12.03% industry average. Its 8.58% trailing-12-month levered FCF margin is 130% higher than the 3.73% industry average. Likewise, its 16.66% trailing-12-month Return on Total Assets is 219% higher than the industry average of 5.22%.
RS’ net sales for the first quarter ended March 31, 2023, increased 9.8% sequentially to $3.97 billion. The company’s non-GAAP net income attributable to RS increased 8.4% sequentially to $379.50 million. Moreover, its non-GAAP EPS increased 8.5% sequentially to $6.37.
RS has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 32.8% to close the last trading session at $247.65.
RS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Steel industry, it is ranked #10 out of 34 stocks. It has a B grade for Quality. We have also given RS grades for Growth, Value, Momentum, Stability, and Sentiment. Get all RS ratings here.
Voestalpine AG (VLPNY)
Headquartered in Linz, Austria, VLPNY processes, develops, manufactures, and sells steel products in Austria, European Union, and internationally. The company operates through five segments: Steel, High-Performance Metals, Metal Engineering, Metal Forming, and Other
In terms of the trailing-12-month Return on Common Equity, VLPNY’s 15.47% is 36.7% higher than the 11.31% industry average. Its 8.58% trailing-12-month Return on Total Assets is 64.3% higher than the 5.22% industry average. Likewise, its 1.12x trailing-12-month asset turnover ratio is 47.6% higher than the industry average of 0.76x.
VLPNY’s revenue for the nine months ended December 31, 2022, increased 29.3% year-over-year to €13.59 billion ($14.92 billion). Its profit after tax rose 23.9% over the prior-year period to €864 million ($949.08 million). Additionally, its EPS came in at €4.46, representing a 17.1% increase from the prior-year period.
VLPNY’s revenue for fiscal 2023 is expected to increase 22.9% year-over-year to $19.65 billion. Over the past six months, the stock has gained 66.6% to close the last trading session at $6.85.
VLPNY’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to a Strong Buy. It is ranked #3 in the same industry. In addition, it has a B grade for Value, Stability, and Quality.
Click here to see the other ratings of VLPNY for Growth, Momentum, and Sentiment.
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RS shares were trading at $248.78 per share on Wednesday afternoon, up $1.13 (+0.46%). Year-to-date, RS has gained 23.37%, versus a 7.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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