Barclays Bullish On Steel (And Mini-Mill Companies)

In a report published Thursday, Barclays weighed in on U.S. metals and mining, and expressed its bullishness on the steel, even in spite of "concerns on global growth and persistently weak commodity prices."

Analysts Matthew J. Korn and Kalpesh Patel said they believe that the effects of the downward trend in steel pricing will be offset by the steel mini-mill companies' exposure to increasing American steel demand.

The research firm believes that its Overweight-rated steel stocks, Nucor Corporation NUE and Steel Dynamics, Inc. STLD, "stand to gain from steel consumption growth from the U.S. construction, manufacturing, and automotive industries, (…) while offering little direct exposure to the suddenly troubled energy sector."

Barclays initiated coverage on both Steel Dynamics and Nucor as Overweight cases, with respective price targets of $30 and $62. This implies an upside potential of approximately 74 percent for the former, and 40 percent for the latter.

In addition, both companies expect to see major projects to reach critical mass in 2015. This "should drive greater raw material self-sufficiency, lower costs, and improved cash flows."