Over the past few years, the metal industry encountered numerous challenges. Rising raw material and transportation costs posed profitability hurdles for several metal manufacturers. Additionally, the pandemic disrupted the supply chain, resulting in factory closures, workforce shortages, and shipping delays across the country.
However, the metal industry is anticipated to experience a rebound in 2023, driven by the upsurge in urbanization, continued industrialization, and technological advancements in the metal space.
Hence, it could be wise to invest in quality metal stocks Southern Copper Corporation (SCCO), ESAB Corporation (ESAB), and Ryerson Holding Corporation (RYI) this month.
Before delving into the fundamentals of these stocks, let's discuss the factors shaping the metal industry’s future.
Rapid urbanization, continued industrialization, and the rise in infrastructure development projects sustain the demand for metals. As economies continue to advance and undertake new infrastructure projects, metals’ requirement to construct bridges, roads, and buildings is inevitably escalating.
In addition, the increasing adoption of Electric Vehicles (EVs) and renewable energy is anticipated to drive an “unprecedented” inflow of investment into the copper market. Citigroup (C) predicts a substantial increase in the value of the metal industry, specifically copper, due to this surge in demand.
The demand for base metals is also receiving a boost from the reopening of China’s economy and the robust industrial growth in Europe and the United States. Jefferies analysts, led by Chris LaFemina, said, “We believe the [metals and mining] sector in general is poised to materially outperform the broader equity markets once again.”
Furthermore, the metal industry has been undergoing a significant digital transformation. By leveraging automation, artificial intelligence (AI), and the Internet of Things (IoT), manufacturers are experiencing improved efficiency and reduced costs. Such technological integrations are propelling the industry towards heightened productivity and operational efficiency.
According to a report by The Business Research Company, the global metal market is expected to reach $5.46 trillion by 2027, growing at a CAGR of 6.6%.
Moreover, investors’ interest in metal stocks is evident from the iShares MSCI Global Metals & Mining Producers ETF’s (PICK) 16.7% returns over the past nine months.
Given the industry’s tailwinds, investors could consider adding fundamentally sound metal stocks SCCO, ESAB, and RYI to their portfolios this month for potential gains.
Let’s take a closer look at the fundamentals of these stocks.
Southern Copper Corporation (SCCO)
SCCO mines, explores, smelts, and refines copper and minerals. It operates five underground mines that produce zinc, lead, copper, silver, and gold, a coal mine that produces coal and coke, and a zinc refinery. The company holds exploration concessions in Peru, Mexico, Argentina, Chile, and Ecuador, spanning vast hectares.
In the latest quarterly release, the company announced a continued focus on expanding its operations. SCCO’s Pilares mine has been operational since the fourth quarter of fiscal 2022, raising annual copper production capacity by 35,000 tons.
Also, the new zinc concentrator at Buenavista is projected to ramp up in the fiscal third quarter of 2023, elevating yearly production by 100,000 tons of zinc and 20,000 tons of copper.
In addition, the company is actively developing the El Pilar project, which would contribute an additional 36,000 tons of copper. Such initiatives could potentially fuel the SCCO’s growth and expansion.
During the first quarter that ended March 31, 2023, SCCO’s net sales increased 1.1% year-over-year to $2.79 billion. Its net income grew 3.6% year-over-year to $815.90 million, while EPS came in at $1.05, up 2.9% from the prior year’s period.
Also, as of March 31, 2023, the company’s cash and cash equivalents stood at $2.30 billion, compared to $2.07 billion as of December 31, 2022.
Analysts expect SCCO’s revenue for the fiscal year (ending December 2023) to increase 5.6% year-over-year to $10.61 billion. The consensus EPS estimate of $3.81 for the ongoing year reflects an 11.8% growth year-over-year. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of SCCO have gained 23.8% over the past six months to close the last trading session at $74.16.
SCCO’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SCCO has an A grade for Quality and a B for Growth and Stability. It is ranked #6 in the B-rated 33-stock Industrial - Metals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SCCO’s ratings for Value, Momentum, and Sentiment here.
ESAB Corporation (ESAB)
ESAB formulates, develops, manufactures, and supplies cutting, joining, and automated welding products and equipment. It offers control equipment, software, and digital solutions to enhance customer productivity, remotely monitor welding operations, and digitize documentation.
ESAB’s first-quarter solid performance and market resilience have led to an upward revision in its full-year 2023 outlook. The company now expects core organic sales growth of 3.5%-5.5% and total core sales growth of 4.0%-6.0%, surpassing its previous guidance of 3.0%-5.0% and 2.0%-4.0%, respectively.
Additionally, ESAB foresees core adjusted EBITDA of $430-$450 million and core adjusted EPS of $3.85-$4.05, exceeding its prior guidance of $420-$440 million and $3.80-$4.00, respectively.
For the first quarter that ended March 31, 2023, ESAB’s net sales increased 5.6% year-over-year to $684 million, and its gross profit grew 10.3% from the year-ago value to $247.39 million.
Also, the company’s core adjusted EBITDA rose 11.7% from the prior year’s period to $112.70 million. Its adjusted free cash flow increased 79.8% year-over-year to $40.10 million.
The consensus revenue estimate of $2.69 billion for the fiscal year ending December 2024 reflects a 3.6% year-over-year improvement. Likewise, the consensus EPS estimate of $4.44 for the same period indicates a 10% rise year-over-year. Also, the company topped the consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 40% over the past six months to close the last trading session at $65.72.
ESAB’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
ESAB has an A grade for Momentum and a B for Stability and Sentiment. It is ranked #2 out of 33 stocks within the Industrial – Metals industry.
Click here to access additional ESAB ratings (Growth, Value, and Quality).
Ryerson Holding Corporation (RYI)
RYI processes and distributes industrial metals globally. Its product range includes carbon steel, stainless steel, alloy steels, aluminum, nickel, and red metals in various forms, such as coils, sheets, bars, plates, and tubing. In addition, the company provides processing services.
On March 2, RYI announced its acquisition of BLP Holdings, LLC, which offers complex fabrication services and toll processing capabilities. This acquisition should enable RYI to expand its high-margin, value-added business. It could also provide an opportunity to diversify offerings, including additional toll processing services, while also strengthening its Ryerson service-center network.
For the first quarter that ended March 31, 2023, RYI’s revenue increased 9.2% quarter-on-quarter to $1.41 billion. The company generated an operating cash flow of $80.4 million and a free cash flow of $52.6 million during the period. In addition, as of March 31, 2023, the company’s cash and cash equivalents stood at $43.70 million, compared to $39.20 million as of December 31, 2022.
Analysts expect RYI’s EPS to grow 8.4% year-over-year to $4.01 for the fiscal year ending December 2024. Furthermore, the company’s EPS is expected to marginally grow per annum over the next five years. Over the past six months, the stock has gained 34.8% to close the last trading session at $39.33.
RYI’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
RYI has an A grade for Value and a B for Sentiment and Quality. It has ranked #3 out of 33 stocks within the same industry.
Click here to access additional RYI ratings for Growth, Stability, and Momentum.
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SCCO shares were trading at $74.00 per share on Friday morning, down $0.16 (-0.22%). Year-to-date, SCCO has gained 25.81%, versus a 15.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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