On Nov.15, 2021, President Biden signed the historic Infrastructure Investment and Jobs Act (IIJA). With the bill, the Biden administration allocated $1.20 trillion toward fixing the country’s creaking infrastructure. The act put billions of dollars toward constructing roads, bridges, railroads, airports, and ports. The package also seeks to expand broadband availability, improve water systems, and replace lead pipes.
According to a memo released by the White House, the Biden administration has directed federal agencies to make sure that the construction projects being funded under the IIJA use domestically manufactured products, such as iron and steel. Starting May 14, 2022, all manufacturing processes for the metals, from the initial melting stage to the application of the coating, must happen in the United States. This is expected to be highly beneficial for U.S.-based steel manufacturers because most projects under the IIJA would require high usage of iron and steel.
Given this backdrop, we believe investors could look to add quality iron and steel stocks Steel Dynamics, Inc. (STLD), United States Steel Corporation (X), and Nucor Corporation (NUE) to their portfolios.
Steel Dynamics, Inc. (STLD)
STLD in Fort Wayne, Ind., is a steel producer and metal recycler in the United States. It operates through three segments: Steel Operations, Metals Recycling Operations, and Steel Fabrication Operations.
On Jan. 31, 2022, STLD announced the acquisition of a minority equity interest in New Process Steel, L.P. STLD’s Chairman and CEO, Mark D. Millett, said, “This minority equity interest enables us to expand our exposure to value-added manufacturing opportunities while continuing to serve our other long-standing flat roll steel customer needs.”
STLD’s net sales increased 57.1% year-over-year to $5.56 billion for the first quarter ended March 31, 2022. The company’s net income increased 152.3% year-over-year to $1.10 billion. Also, its adjusted EBITDA increased 139% year-over-year to $1.58 billion. In addition, its EPS came in at $5.71, representing a 181.2% increase year-over-year.
Analysts expect STLD’s EPS for the quarter ending June 30, 2022, to increase 38.2% year-over-year to $4.70. Its revenue for fiscal 2022 is expected to increase 18.7% year-over-year to $21.85 billion. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 72.1% in price to close the last trading session at $89.33.
STLD’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall B rating, which translates to a Buy. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Momentum and a B grade for Growth and Quality. It is ranked #16 among 34 stocks in the A-rated Steel industry. Click here to see the other ratings of STLD for Value, Stability, and Sentiment.
United States Steel Corporation (X)
X is an integrated steel producer engaged in producing and selling steel products, including flat-rolled and tubular products, in North America and Europe. The Pittsburgh, Pa., company’s operations in the U.S. include iron ore and coke production and real estate operations, while its operations in Europe include coke production facilities. It operates through the North American Flat-Rolled, Mini Mill, U.S. Steel Europe, and Tubular Products segments.
On Feb. 28, 2022, X announced its decision to advance its metallics strategy by insourcing pig iron capabilities at Gary Works. X’s President and CEO David B. Burritt said, “Our ability to control this important steelmaking input is a valuable competitive differentiator for our growing fleet of electric arc furnaces. An investment in pig iron is an important first step to translating our low-cost iron ore advantage to our EAF footprint while driving efficiencies at Gary Works.”
For its fiscal fourth quarter, ended Dec. 31, 2021, X’s net sales increased 119.4% year-over-year to $5.62 billion. Its adjusted net earnings came in at $1.03 billion, compared to an adjusted loss of $60 million in the year-ago period. Also, its adjusted EPS came in at $3.64, compared to a $0.27 adjusted loss per share. In addition, its adjusted EBITDA increased 1,886.2% year-over-year to $1.72 billion.
For the quarter ending March 31, 2022, X’s EPS and revenue are expected to increase 173.1% and 43.5%, respectively, year-over-year to $2.95 and $5.27 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 71.9% in price to close the last trading session at $32.63.
X’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
Nucor Corporation (NUE)
NUE in Charlotte, N.C., is focused on manufacturing steel and steel products that produce direct reduced iron for use in its steel mills. The company’s segments include Steel Mills, Steel Products, and Raw Materials.
On April 6, 2022, NUE announced that it invested $15 million in developing small modular nuclear reactors named NuScale Power, LLC. NUE’s President and CEO Leon Topalian said, “As America’s largest steel producer and a significant energy consumer, we are looking for safe and reliable sources of power generation that are consistent with our sustainability goals. The continuing development of small modular nuclear reactors is critical to ensure our nation has carbon-free, baseload power, so we are making this investment in NuScale.”
NUE’s net sales increased 49.5% year-over-year to $10.49 billion for the first quarter, ended April 2, 2022. The company’s net income attributable to its shareholders increased 122.3% year-over-year to $2.09 billion. Also, its EPS came in at $7.67, representing a 147.4% increase year-over-year.
Analysts expect NUE’s EPS and revenue for the quarter ending June 30, 2022, to increase 41% and 43.3%, respectively, year-over-year to $7.26 and $11.83 billion. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 103.7% in price to close the last trading session at $158.56.
NUE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
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STLD shares were unchanged in premarket trading Tuesday. Year-to-date, STLD has gained 44.50%, versus a -9.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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