Stocks Of Steel: The Best Plays For Resurgent Steel

Few sectors are as intimately tied to the health of the global economy as steel. This high-beta group was taken to the woodshed last year as global investors fretted about a confluence of negative factors, namely Europe's sovereign debt crisis, emerging markets demand and slack growth in the U.S. It's a pretty simple equation really. Skittish market environment + negative macroeconomic factors = Bad news for steel demand and the performance of steel stocks. Name a steel stock and chances are it embodied that negative scenario in 2011. Just look at Hyman Roth's favorite stock, U.S. Steel

. If flirted with $55 in May before dropping below $19 in October. Fast forward to January 2012, and it looks like the darkest clouds have passed for steel stocks and catalysts exist for further gains. The

is one of those catalysts. Some help from Detroit's big industry

. Demand for steel pipes and related fare by energy producers is expected to remain robust and any improvement in Europe's sovereign debt situation will help. "We are still fairly optimistic about global growth in 2012 based on continued sluggish exit from recession in the West along with slower, but still high, growth in the emerging markets. Mid-2012 is seen as the most likely timing for any real improvement at global level," according to GFMS. Consider these names for a steel resurgence in 2012:

Nucor is the largest U.S. steelmaker and recycler and it has an added bonus that rivals like U.S. Steel do not have. A decent yield. Yes, Nucor's dividend is a shell of what it was before the financial crisis, but the company is at least making efforts to increase the payout and the yield currently rests at 3.3%. When it comes to cyclical companies, management matters and that's another reason to like Nucor. CEO Dan DiMicco might be the best in the business. The shares could be considered overbought here, so either start with a small position or wait for a pullback.

With a market cap just over $1 billion, AK Steel is treading in small-cap territory. Then again, if the risk on trade is really back on, then small-cap cyclicals are a good place to be. AK trades at just 6.7 times forward earnings (cheaper than Nucor on that basis). AK can be bought in the $9.50-$9.75 area with an eye on a move to $11.

While AK Steel and Nucor have turned in impressive double-digit year-to-date performances, Schnitzer has been a laggard with a gain of just 3.2%. Don't let that deter you from Schnitzer, which engages in recycling ferrous and nonferrous scrap metals. As Bret Jensen notes "The company is selling near the bottom of its five-year valuation range based on P/B, P/S and P/CF and insiders have been net buyers of the stock over the last six months." Remember, there's only one reason insider buy their company's stock: Because they think it's going up.

Maybe it's good to be indecisive about steel stocks because the indecisive among us may have opted for the Market Vectors Steel ETF over an individual steel stock. Good call because year-to-date, SLX has outperformed AK Steel, Nucor and U.S. Steel. SLX, the first U.S.-listed ETF devoted exclusively to steel stocks, isn't just about U.S. companies. In fact, almost 56% of SLX's country weight is allocated outside the U.S. That includes a 20% allocation to Brazil and another 11% combined to South Korea and Russia. Mining giants Rio Tinto

, Vale

and ArcelorMittal

represent over 28% of the ETF's weight. SLX is pushing $57, but an extended risk on environment gets it back to $70s.