Steel manufacturers are in a strong position this year. Backlogs for steel have grown as several economies shake off the pandemic lockdowns and supply chain constraints ease. Demand for steel grew 4.5% in 2021 and will likely grow 2.2% through 2022.
It is no surprise that with limited inventory and strong demand, steel prices are expected to go up. That's benefiting steel stocks.
Steel Dynamics holds a spot in the IBD 50, and is today's focus for IBD 50 Stocks to Watch. The company sports a high Composite Rating of 97, and its chart looks favorable too.
The stock is forming a cup-with-handle base with a buy point of 88.72. This entry follows an earlier handle of 86.04 that failed. The stock has built its cup base over 12 weeks so far. The base has a depth of 38%, which is slightly higher than ideal. The handle's depth of 8% is good and allows the lower entry point. Shares have been trading above their 50- and 200-day moving averages.
Steel Stock's Strong Technical Ratings
The IBD 50 stock has many technical and fundamental factors working for it. Its near perfect Composite Rating and strong Relative Strength Rating of 94 show its technical leadership. Its relative strength line has risen modestly since July, indicating the stock's superior performance compared to the S&P 500. It ranks No. 2 in the steel producers industry group.
The company also has a strong SMR Rating of A, which indicates solid revenue growth, profit margins and return on equity.
The company has had strong earnings growth over the past seven quarters, according to IBD MarketSmith, ranging from 98% to 873%. Sales growth ranged from 39% to 118%. Growth slowed in the past couple of quarters, although from huge previous gains.
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More funds have been buying the stock, which speaks to a key metric in the CAN SLIM stock picking strategy. Increasing institutional ownership indicates that fund managers believe in the fundamental and technical strength of the stock.
Steel Dynamics has six mills and several coating operations with a total of 13 million tons of steel shipping capability. It manufactures steel products such as hot roll, cold roll, coated sheet steel, structural steel beams and steel joists. It also manufactures copper products and products with recycled materials, besides making liquid pig iron. It also processes scrap.
Several metal building companies, general construction contractors, developers, brokers and government agencies use its products.
Strong Q2 Results For Steel Stock
In its second quarter, the company showed sales of $6.2 billion and earnings of $6.44 a share. (MarketSmith shows a different profit total.)
A diversified revenue stream drove sales as steel fabrication operations gains offset lower earnings from flat roll steel. Steel Dynamic's outlook for the rest of 2022 was strong thanks to record backlog volumes.
Dividends of 34 cents a share will be payable on or near Oct. 14 to shareholders of record on Sept. 30.
Steel stocks are highly cyclical and demand will fluctuate with economic contractions and expansions.
