- Though a risky market subject to sharp volatility, steel stocks are intriguing, since a rising global population will likely spark long-term demand.
- U.S. Steel (X): X marks the spot for one of the most-recognized steel stocks to buy now, as evidenced by its earnings beat.
- Cleveland-Cliffs (CLF): The steel maker recently crushed earnings as well, providing confidence for patient investors.
- Thyssenkrupp (TKAMY): For the extreme speculator, Thyssenkrupp could be a short-squeeze candidate.
Although macroeconomic headwinds have been unpleasant for myriad investment sectors, one surprising category — steel stocks — managed to help keep speculators’ portfolio in the black. Normally, you wouldn’t expect it with an ongoing military conflict in eastern Europe and China’s zero-coronavirus policy weighing on the stability and forward vitality of the global economy.
Yet several steel stocks to buy now have soared amid the chaos of 2022, with core catalysts stemming from former President Donald Trump’s administration. Because of tariffs imposed on imported steel, this dynamic accelerated demand for the critical commodity. In 2021, this source of friction became incredibly elevated as the international community was desperate to kickstart economic activity.
However, reduced supply and rising demand usually only means one thing: much higher prices. Even with Russia’s unsettling decision to invade Ukraine, steel stocks continued their upward trajectory. However, one major risk factor is China’s insistence on fully containing its Covid-19 cases. The lockdowns in the second-largest economy have dimmed steel prices, posing concerns that a bubble may pop.
While not sugarcoating this significant risk factor, the global population continues to rise. Typically, this circumstance translates to higher demand for products and infrastructure, not less. Thus, for the risk-tolerant speculator, there may still be some time to advantage from these steel stocks.
U.S. Steel (X)
One of the largest companies in the target industry, U.S. Steel (NYSE:X) is an American integrated steel producer headquartered in Pittsburgh, Pennsylvania. It features production operations in the U.S. and central Europe. Not surprisingly given the broader context of the new normal, X has been one of the top beneficiaries, moving up nearly 24% on a year-to-date basis.
But it’s not just outside dynamics that have helped U.S. Steel command an enviable performance in the market. Rather, the company delivers on the fundamentals. Recently, it posted quarterly earnings of $3.05 per share, beating out the consensus estimate of $3 per share. Further, according to information by Zacks Equity Research, U.S. Steel has surpassed consensus estimates for earnings per share three times over the last four quarters.
Despite the positives, I’d be remiss not to point out that over the trailing month, X is down 22% — not an unusual performance for steel stocks. Therefore, buying the dips gradually may be warranted rather than an all-in-one-shot wager.
While Pittsburgh may be the “Steel City,” it’s not the only city that knows how to flex its industrial muscles. Cleveland-Cliffs (NYSE:CLF), located in its namesake city, specializes in the mining, beneficiation, and pelletizing of iron ore, as well as steelmaking, including stamping and tooling. It’s also the largest flat-rolled steel producer in North America per the company’s website, giving CLF some serious street cred among steel stocks to buy now.
And just like U.S. Steel, Cleveland-Cliffs isn’t just a strong performer in the charts, though it is that with its 16% YTD gain. Rather, to borrow Barron’s contributor Al Root’s words, CLF crushed earnings estimates: “Cleveland-Cliffs reported adjusted earnings per share of $1.71 from $6 billion in sales. Wall Street was looking for EPS of $1.46 from $5.4 billion in sales.”
One of the most notable takeaways from the company’s earnings report was that investors believe steel prices won’t stay elevated. However, Cliffs’ results exposed the “difference between spot and contract commodity prices,” with “Cliffs pricing stayed strong even as spot prices weakened.”
Since the start of the new normal, new investors have gravitated toward speculative investments. Indeed, the meme-trade phenomenon was born out of a desire to spark a short squeeze, a phenomenon where a heavily shorted stock jumps higher due to panicky bears covering their positions against an unexpected surge of bullishness. It’s possible, though hardly guaranteed, that Thyssenkrupp (OTCMKTS:TKAMY) could benefit from such a setup.
As mentioned near the top, steel stocks face significant risks, particularly because of China’s zero-Covid-19 policy. However, OilPrice.com noted that steel prices “for hot-rolled coil in Europe have started to decline as end-users push back from earlier offers.” Thyssenkrupp is based in Europe, and is specifically a German multinational conglomerate focused on industrial engineering and steel production.
It’s also one of the steel stocks that have not benefitted from the upswing in the broader market segment, with Thyssenkrupp shares down nearly 31% YTD. However, that might also draw attention for those looking to speculate on heavily shorted securities like TKAMY.
As I said, it’s no guarantee. However, it could be interesting for gamblers looking for these kinds of trading setups.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.