Nucor Corporation's (NUE) premarket decline clashes with the upswing in global steel demand driven by infrastructure projects and manufacturing resurgence. Therefore, strong steel stocks Voestalpine AG (VLPNY), Ternium S.A. (TX), and Nippon Steel Corporation (NPSCY) could make better buys instead. Let’s understand this in detail.

NUE’s premarket trading witnessed a decline in shares following the release of its subdued third-quarter guidance. The company anticipates earnings from $4.10 to $4.20 per share, falling short of analysts' projections of $4.61. This compares to its second-quarter earnings of $5.81 per share.

The forthcoming decline from the preceding quarter stems from projected decreases across various facets of the enterprise. The steel mills and steel products divisions confront diminished pricing and volumes, while the raw materials sector contends with narrowing margins within its facilities and scrap processing operations.

However, steel maintains extensive versatility across a wide array of industries, including construction, automotive, manufacturing, and electrical appliances. The escalating requirements driven by industrialization and urbanization stand ready to bolster the steel demand, potentially offsetting the adverse effects of macroeconomic challenges.

The Bipartisan Infrastructure Law is also poised to profoundly impact steel demand. This legislation has catalyzed over 3,700 projects for repairing and replacing bridges nationwide, kickstarting the revitalization of over 69,000 miles of roadways. As a result, there is a growing need for steel products essential in road and bridge construction.

According to the April 2023 Short Range Outlook Report by the World Steel Association, global steel demand is projected to increase by 2.3% year-over-year in 2023, reaching 1,822.3 Mt, compared to 1,781.5 Mt in 2022. This represents an improvement from the October 2022 report, which forecasted a 1.0% growth in global steel demand for 2023.

Furthermore, the outlook suggests a 1.7% expansion in 2024, culminating in a total of 1,854.0 million metric tons, driven by the resurgence of the manufacturing sector. In parallel, as per ReportLinker, the steel manufacturing market is expected to surge by $369.6 billion by 2027, at a CAGR of 4%.

Considering the outlined factors, VLPNY, TX, and NPSCY may offer more favorable investment opportunities compared to NUE, capitalizing on the prevailing industry growth trajectories. To that end, let us dive into the fundamentals of these three Steel industry picks, beginning with number three.

Stock #3: Voestalpine AG (VLPNY)

VLPNY, headquartered in Linz, Austria, engages in the processing, developing, manufacturing, and marketing of steel products. The company operates through five segments, Steel; High Performance Metals; Metal Engineering; Metal Forming; and Other.

On July 12, VLPNY unveiled its significant contract to provide 100 kilometers of guard rails for the expansion and modernization of the D4 highway in the Czech Republic while overseeing the entire project from inception to installation. The D4 highway project, spanning 86 kilometers upon completion, represents a lucrative opportunity for VLPNY.

The supply and installation of approximately 2,300 tons of steel in the form of vehicle restraint systems translate into substantial contract value. As VLPNY executes this project successfully, it is expected to bolster its financial performance and reinforce its position in the market as a reliable and profitable player in the steel industry.

On March 9, VLPNY announced its achievement of securing its largest-ever order, valued at approximately €237 million ($252.98 million). The contract encompasses the design, supply, and servicing of turnouts, drives, and rail expansion joints, alongside diagnostic systems, for the prestigious High Speed 2 rail network in Great Britain.

Beyond this deal, VLPNY is involved in supplying premium rails, high-speed turnouts, and advanced signaling technology to major global projects. The collective order volumes for these ventures amount to €600 million ($640.46 million). These contracts are set to fuel VLPNY's growth and consolidate its position in the global rail infrastructure sector.

For the first quarter that ended June 30, 2023, VLPNY’s cash inflow from operating activities stood at €9.6 million ($10.25 million), compared to a cash outflow of €551.20 million ($588.37 million) in the previous year’s period. Its cash inflow from financing activities came in €181.80 million ($194.06 million), up 84.4% year-over-year.

As of June 30, 2023, the company’s cash and cash equivalents amounted to €828.50 million ($884.37 million), while current assets totaled €9.23 billion ($9.85 billion).

For the fiscal second quarter (ending September 2023), VLPNY’s revenue is expected to come in at $4.47 billion. Street expects its revenue to be $18.08 billion for the current fiscal year (ending March 2024).

Shares of VLPNY have gained 50.9% over the past year to close the last trading session at $5.87.

VLPNY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

VLPNY has an A grade for Value and a B for Momentum, Stability, and Quality. It is ranked #5 in the A-rated 32-stock Steel industry.

In addition to the POWR Ratings I’ve just highlighted, you can see VLPNY’s ratings for Growth and Sentiment here.

Stock #2: Ternium S.A. (TX)

Headquartered in Luxembourg City, Luxembourg, TX manufactures, processes, and markets a diverse range of steel products. Its Steel segment includes slabs, billets, hot-rolled flat products, and more, while the Mining segment focuses on iron ore and pellet sales.

On July 3, TX, in partnership with Tenaris S.A.'s (TS) subsidiary, Confab, concluded the acquisition of 68.7 million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS from the NSC group, which includes Nippon Steel Corporation, Mitsubishi, and MetalOne.

In this transaction, TX invested $118.7 million in cash to secure 57.7 million ordinary shares, thereby increasing its ownership stake in the Usiminas control group to 51.5%. The expanded ownership could strengthen TX's foothold in the lucrative steel industry and contribute to enhanced profitability in the global market.

On June 20, TX announced plans to construct a state-of-the-art steel slab mill in Pesquería, Nuevo León, Mexico. It will seamlessly integrate into the company's existing operations, bolstering its strategic vision alongside the operational hot rolling mill and the ongoing downstream project at the same location.

The advanced mill also underscores TX's commitment to sustainability, featuring carbon capture capabilities and a flexible infrastructure ready to transition from natural gas to hydrogen for direct reduced iron (DRI) production. This investment could place TX at the forefront of steel industry innovation while ensuring eco-friendly steel manufacturing.

For the second quarter that ended June 30, 2023, TX’s cash inflow from operating activities came in at $48 million, compared to a cash outflow of $5 million in the prior year’s quarter. Moreover, its cash inflow from investing activities stood at $37 million, compared to a cash outflow of $413 million in the previous year’s period.

In addition, as of June 30, 2023, the company’s non-current assets stood at $9.09 billion, compared to $8.65 billion as of December 31, 2022.

For the fiscal fourth quarter ending December 2023, analysts expect TX’s revenue to marginally increase year-over-year to $3.55 billion. The company’s EPS for the next quarter is expected to grow 354.7% from the prior year’s period to $0.91. The stock has gained 37.2% over the past year, closing the last trading session at $40.21.

TX’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

TX has an A grade for Sentiment and a B for Value, Stability, Quality, and Momentum. It is ranked #2 within the same industry.

Click here to access the additional TX rating (Growth). 

Stock #1: Nippon Steel Corporation (NPSCY)

Based in Tokyo, Japan, NPSCY operates in steelmaking, steel fabrication, engineering, construction, chemicals, materials, and system solutions. It is also engaged in construction, waste processing, energy supply, and various materials production, including coal-based chemicals, petrochemicals, carbon fiber, and composites.

On August 12, NPSCY and ArcelorMittal finalized a 50:50 joint venture agreement to construct an Electric Arc Furnace (EAF) at AM/NS Calvert in Alabama. The addition of this advanced EAF should significantly expand production capabilities, allowing NPSCY to serve a wider customer base.

In addition, the collaboration would position NPSCY as a leader in steelmaking innovation, providing a competitive edge in the global market and leading to increased profitability.

For the fiscal 2023 first quarter that ended June 30, NPSCY’s revenue increased 14.6% year-over-year to ¥2.20 trillion ($14.90 billion). As of June 30, 2023, the company’s current assets stood at ¥4.76 trillion ($32.21 billion), compared to ¥4.07 trillion ($27.56 billion) as of March 31, 2023.

Also, as of June 30, 2023, the company’s total assets amounted to ¥10.42 trillion ($70.55 billion), up from ¥9.57 trillion ($64.78 billion) as of March 31, 2023.

The company’s revenue for the fiscal year ending March 2024 is expected to increase 63.7% year-over-year to $60.58 billion. Over the past year, the stock has gained 60.4%, closing the last trading session at $8.13.

NPSCY’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

NPSCY has an A grade for Growth, Momentum, Sentiment, and Value. It has topped the 32-stock Steel industry.

Click here to access additional NPSCY rating for Quality.

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NUE shares were trading at $157.76 per share on Tuesday morning, up $3.09 (+2.00%). Year-to-date, NUE has gained 20.48%, versus a 16.10% rise in the benchmark S&P 500 index during the same period.

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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