Steel demand has recovered during the first six months of 2021. The World Steel Association forecasts steel demand to grow by 5.8% in 2021 and by 2.7% in 2022.
A recently approved $1 trillion Senate infrastructure plan is expected to drive the steel industry’s growth because steel is widely used for construction. Rapid development in urban centers and other infrastructure initiatives are expected to drive Steel companies’ growth.
Given the industry’s solid growth prospects, we think quality steel stocks, Tata Steel Limited (TATLY), Companhia Siderúrgica Nacional (SID), and Mechel PAO (MTL), which are currently trading below $10, could be ideal bets now.
Tata Steel Limited (TATLY)
TATLY manufactures and distributes steel products internationally. The company is based in India. It offers a wide range of steel products, including hot-rolled (HR) and cold-rolled (CR) coated steel coils and sheets, precision tubes, tire bead wires, spring wires, and bearings.
TATLY signed a Memorandum of Understanding (MoU) with Mitsui O.S.K. Lines (MOL), a global marine transport group, on August 6 to develop and deploy environment-friendly shipping solutions. Earlier, the company had commissioned India’s first steel recycling plant at Rohtak, Haryana. In addition, TATLY has undertaken several other sustainability initiatives over the past few months. These moves demonstrate its commitment to sustainability and efforts to reduce greenhouse gas emissions.
TATLY’s total revenues from operations increased 109.5% year-over-year to ₹533.72 billion ($7.27 billion) in the fiscal second quarter ended June 30. Its gross sales grew 110.3% from the year-ago value to ₹525.74 billion ($7.16 billion). TATLY’s net profit for the period came in at ₹97.68 billion ($1.33 billion), indicating a 310.2% rise year-over-year. The company’s EPS increased 290% year-over-year to ₹74.13. TATLY closed its last trading session at $9.25.
TATLY has an overall B rating, translating to Buy in our POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
TATLY has an A grade for Momentum, and a B for Growth, Stability, and Quality. Among the 33 stocks in the A-rated Steel industry, TATLY is ranked #15.
Get additional POWR Ratings for Value and Sentiment, here.
Companhia Siderúrgica Nacional (SID)
Headquartered in Brazil, SID is an integrated steel producer. The company operates in five segments: Steel; Mining; Logistics; Energy; and Cement.
SID’s net revenue increased 147% year-over-year to R$15.39 billion ($2.93 billion) in its fiscal second quarter, ended June 30. Its gross profit was R$8.28 billion ($1.58 billion), up 349% from the same period last year. Its adjusted EBITDA grew 324% from the year-ago value to R$8.17 billion ($1.55 billion). And its EBITDA margin expanded 22.2 percentage points from the prior-year quarter to 53.1%.
A $3.11 billion consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates an 87% increase year-over-year. The Street expects the company’s EPS to rise 1,600% from the prior-year quarter to $0.68 in the current quarter. Over the past year, the stock has gained 104.9% in price to close yesterday’s trading session at $6.31.
SID’s promising outlook is reflected in its POWR Ratings. SID has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, SID has a grade of A for Momentum and Quality, and a B for Growth and Value. It is ranked #9 in the Steel industry.
Click here to view additional SID ratings for Sentiment and Stability.
Mechel PAO (MTL)
MTL is in the mining, steel, and power businesses in Russia, Asia, Europe, the Commonwealth of Independent States, the Middle East, the United States, and internationally. It is based in Moscow.
On September 9, MTL reported the development of design estimate and approval documentation for launching works at the Sivaglinskoye iron ore deposit. The company expects this project to increase its iron ore self-sufficiency by approximately 15-20%, to reach 60%. In addition, MTL’s Chief Executive Officer Oleg Korzhov commented, “We plan to launch a major iron ore facility which will become one of the industry’s leaders in Russia’s Far East Federal District.”
On June 21, MTL launched the first stage of new wire drawing equipment at Beloretsk Metallurgical Plant to produce import-substituting wire. The equipment has been acquired as part of its goal to revamp the plant’s wire and rope facilities. The upgrade should enable the plant to produce import-substituting wire with high-quality characteristics and strengthen its industry position.
For the six months ended June 30, MTL’s revenues increased 40% year-over-year to 184.91 billion rubles ($2.54 billion). Its operating profit grew 665% from its year-ago value to 43.35 billion rubles ($0.60 billion), while its adjusted EBITDA improved 136% year-over-year to 51.97 billion rubles ($0.72 billion). Profit attributable to MTL’s shareholders amounted to 31.81 billion rubles ($0.44 billion), reflecting a 212% year-over-year increase.
Analysts expect MTL’s revenues to increase 28.9% year-over-year to $4.64 billion in the fiscal period ending December 2021. Shares of MTL have gained 164.7% in price over the past year and 101.5% year-to-date to close yesterday’s trading session at $4.13.
It is no surprise that MTL has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The stock also has an A grade for Growth, Momentum, and Quality, and a B grade for Value. In addition, it is ranked #7 in the Steel industry.
To see additional MTL ratings for Sentiment and Stability, click here.
Note that MTL is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
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TATLY shares were unchanged in after-hours trading Wednesday. Year-to-date, TATLY has declined 0.00%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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