Market Overview

Economic Optimism Propels Strong January For Steel Stocks

Better than expected economic numbers along with improving sentiment about the prospects of the global economy helped steel stocks to post strong returns in January. One of the strongest performers in the sector over the last month has been Steel Dynamics (NASDAQ: STLD), which has risen better than 17%. The company released its earnings report on January 24, beating analysts' consensus earnings per share estimates by $0.04. In the wake of this strong report, STLD shares have continued to gain momentum.

Another strong performer in the steel sector has been Nucor (NYSE: NUE). That stock is up better than 12% over the last month and has been rising nearly every day. Although over the last 52-weeks, NUE shares are still down around 6%, the stock has been in a strong uptrend over the last 6 months, with the trend accelerating in January. Nucor released a strong quarterly earnings report on January 26, with EPS handily beating analysts' consensus, which appears to have buoyed optimism about the company's forward looking prospects.

In January, global steel producer ArcelorMittal (NYSE: MT) also saw its share price rise. The stock has gained a little less than 10% over the last month, although shares are still down more than 40% versus a year ago. Shares closed Friday's trading session at $21.74 which compares to a 52-week high in the name of $38.50. If the consensus outlook for the global economy continues to improve, look for MT's recent uptrend to accelerate as the year progresses. The stock trades at a trailing P/E of 14.44, a forward P/E of 9.66 and a PEG ratio of 0.54 - on a valuation basis, this name looks relatively inexpensive.

U.S. Steel (NYSE: X) shares also posted strong gains in January and have risen more than 14% over the last month. Like the other steel names, the last 52-weeks have been disappointing, with the stock down almost 47%, but the trend has definitely turned up in X. Furthermore, the rally could gain steam in February if sentiment and the broader market cooperate. U.S. Steel (X) has a very large short interest, with almost 24% of the company's float sold short, and a short-squeeze is definitely a possibility if traders begin to conclude that the bottom is in for the steel sector and that the global economy is about to pick up steam.

AK Steel (NSYE:AKS) has added 2.57% over the last month and has been a laggard among the steel stocks. Similar to U.S. Steel, however, AKS has a very large short interest (20.66%) and could benefit from short covering if the market continues to ramp higher. Both AKS and X would appear to be good candidates for traders looking to put on a high risk/reward trade that will benefit from a bullish future outlook for the domestic and international economy. Steel stocks are extremely sensitive to changes in sentiment, and the high short interest in these names could provide greater upside than some less shorted names in the event of a continued rally in the steel sector.

Posted-In: Long Ideas Economics Trading Ideas Best of Benzinga

 

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