Inflation exceeded expectations as prices rose at a 9.1% year-over-year rate in June, according to the last Labor Department data. This marked the highest price rise since 1981. In response, the Fed is expected to raise interest rates by 75 basis points this month.
Due to the high inflation, rate hikes, and slowing growth, industrial metal prices have stumbled last quarter. However, the energy transition is expected to give a renewed push to metal prices like nickel, copper, and aluminum.
The global metal market is expected to grow at an 8.6% CAGR to reach $3.95 trillion in 2022 and at a 7.7% CAGR to reach $5.31 trillion in 2026. Therefore, we think the fundamentally strong metal stocks Ryerson Holding Corporation (RYI) and BHP Group Limited (BHP) could be solid buys now.
Ryerson Holding Corporation (RYI)
RYI engages in the processing and distribution of industrial metals. The company’s offerings include a line of products of carbon steel, stainless steel, alloy steel, and aluminum.
In June, RYI held a groundbreaking ceremony for its new service center facility and headquarters for its wholly-owned subsidiary, Central Steel & Wire. The facility is expected to be operational in mid-2023.
On June 1, RYI announced its acquisition of a tool steel processor based out of St. Louis, Missouri, called Ford Tool Steels. This might bolster the company’s operational capability.
For the fiscal first quarter of 2022, RYI’s net sales increased 52.4% year-over-year to $1.75 billion. Operating profit rose 406% from the prior-year quarter to $234.80 million. Adjusted net income attributable to RYI and adjusted EPS improved 1,542.2% and 1,542.3% from the same period the prior year to $167.50 million and $4.27.
The consensus EPS estimate of $4.58 for the quarter that ended June 2022 indicates a 269.4% year-over-year increase. Moreover, RYI has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 68.9% over the past year and 7.6% over the past five years to close its last trading session at $23.39.
RYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RYI has a Value grade of A and a Growth, Sentiment, and Quality grade of B. In the 36-stock Industrial – Metals industry, it is ranked #1.
Click here to see the additional POWR Ratings for RYI (Momentum and Stability).
BHP Group Limited (BHP)
BHP is engaged in natural resource businesses regarding minerals, oil, and gas. It is divided into Petroleum; Copper; Iron Ore; and Coal segments. BHP has its headquarters in Melbourne, Australia.
On July 20, BHP announced that it had signed a memorandum of understanding (MoU) with Tata Steel to study and explore lower carbon iron and steelmaking technology. This might prove to be beneficial for the company.
On July 11, Wuxi Boton announced carbon neutral conveyor belts for delivery to BHP’s Spence copper mine in Chile as part of an exclusive pilot project between the two companies.
BHP’s Group Procurement Officer, James Agar, said, “The partnership with Wuxi Boton has been invaluable in helping BHP verify the feasibility of using high-quality carbon offsets to GHG emissions in our supply chain (Scope 3) and grow the potential demand for supplying ‘traced,’ ‘low carbon,’ or ‘carbon neutral’ products amongst our suppliers.”
For the fiscal half-year ended December 31, BHP’s revenue from continuing operations increased 27% year-over-year to $30.53 billion. Profit from operations rose 50.1% from the prior-year period to $14.85 billion, while earnings per ordinary share came in at 186.20 cents, up 143.4% from the same period the prior year.
Street revenue estimate for the fiscal year ended June 2022 of $65.61 billion reflects a rise of 7.9% year-over-year.
The stock has gained 5.4% over the past five days to close its last trading session at $50.86.
It’s no surprise that BHP has an overall A rating, which translates to Strong Buy in our POWR Rating system. In addition, it has a B grade for Stability and Quality. It is ranked #3 in the Industrial – Metals industry.
In addition to the POWR Rating grades we’ve stated above, one can see BHP ratings for Growth, Value, Momentum, and Sentiment here.
RYI shares were trading at $22.96 per share on Thursday afternoon, down $0.43 (-1.84%). Year-to-date, RYI has declined -11.16%, versus a -15.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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