Steel is a fundamental material with a wide range of applications across various manufacturing industries. It assumes a crucial role in the construction of critical infrastructure, encompassing projects like bridges, roads, buildings, and transportation systems.
Considering the significance of steel, it could be wise to keep a watch over two fundamentally sound steel stocks, Nucor Corporation (NUE) and Tenaris S.A. (TS). But before we delve into the fundamentals of these stocks, let's take a closer look at how the steel industry has been faring so far.
Despite the steel industry facing a substantial setback due to the pandemic, leading to temporary factory closures and a sharp decline in demand, the sector will most likely remain in a favorable spot, primarily fueled by the rapid expansion of industrialization and urbanization, particularly in developing nations.
The revival in the steel industry is anticipated to be spearheaded by the manufacturing sector. According to the World Steel Association, steel demand is poised for a 2.3% rebound this year, reaching 1,822.3 million metric tons (Mt). Looking ahead to 2024, it is anticipated that steel demand will continue to grow at a rate of 1.7%, with a total expected to reach 1,854 million metric tons.
Additionally, the global steel market is projected to achieve a CAGR of 5.4% from 2023 to 2029, surpassing $910 billion by 2029, up from $566 billion in 2022.
Moreover, the steel industry is set to gain significantly from government infrastructure initiatives outlined in the Bipartisan Infrastructure Law. This legislation has allocated more than $220 billion in funding for numerous infrastructure projects, substantially boosting the steel sector.
Furthermore, the steel industry is experiencing a growing emphasis on Environmental, Social, and Governance (ESG) considerations as various stakeholders, including investors, customers, and regulatory bodies, are increasingly prioritizing sustainable practices. Many steel manufacturers are proactively working to curtail carbon emissions and ramp up using recycled materials.
With projections of steel demand steadily rising and a growing commitment to sustainability, the steel industry appears poised for a resilient and promising future. In such a scenario, investors could benefit by monitoring NUE and TS.
To that end, let us now dig deeper into the fundamentals of the two aforementioned Steel picks, beginning with number 2.
Stock #2: Nucor Corporation (NUE)
NUE manufactures and sells steel and steel products such as hot-rolled, cold-rolled, galvanized sheet steel, etc. The company operates in three segments: Steel Mills; Steel Products; and Raw Materials.
On August 7, NUE disclosed a Power Purchase Agreement (PPA) to secure 250 megawatts of renewable energy from Sebree Solar, LLC, a NextEra Energy Resources, LLC subsidiary. Sebree Solar represents a cutting-edge solar initiative in Henderson County, Kentucky, with the potential to generate a total of 400 megawatts of domestically sourced electricity.
This agreement with NextEra Energy Resources is expected to foster solar energy growth in Kentucky.
On June 1, NUE announced its agreement with Exxon Mobil Corporation (XOM) to undertake the capture, transportation, and storage of carbon emissions originating from NUE's Direct Reduced Iron (DRI) facility located in Convent, Louisiana.
The project is anticipated to commence operations in 2026 and aligns with Louisiana's goal of achieving net-zero CO2 emissions by 2050. In addition, this agreement underscores NUE’s commitment to implementing a diverse approach to decarbonization.
NUE’s trailing-12-month net income margin of 14.81% is 124.5% higher than the 6.60% industry average. Its trailing-12-month ROCE of 30.07% is 246.7% higher than the 8.67% industry average. Furthermore, the stock’s trailing-12-month EBIT margin of 20.27% is 79.4% higher than the 11.30% industry average.
For the fiscal second quarter, which ended on July 1, 2023, NUE’s net sales amounted to $9.52 billion, while its attributable net earnings came in at $1.46 billion and $5.81 per share, respectively.
During the same period, the company’s cash and cash equivalents and total current assets stood at $4.51 billion and $15.29 billion, up 5.5% and 4.1% compared to $4.28 billion and $14.69 billion as of December 31, 2022, respectively.
Street expects NUE’s revenue and EPS for the third quarter (ending September 2023) to be $8.90 billion and $4.61, respectively. Moreover, the company topped the EPS estimates in three of the trailing four quarters, which is promising.
Over the past three years, NUE’s revenue and net income have grown at CAGRs of 22.2% and 121.3%, respectively. Likewise, its EPS and levered FCF rose at 134.9% and 77.2% CAGRs over the same period, respectively.
The stock has gained 29.7% over the past three months and 30.9% year-to-date to close the last trading session at $172.59.
NUE’s POWR Ratings reflect this promising outlook. It has an A grade for Quality. In the 33-stock A-rated Steel industry, it is ranked #19. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Click here to see NUE’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #1: Tenaris S.A. (TS)
Based in Luxembourg, TS produces and sells seamless and welded steel tubular products and related services for the oil and gas industry, and other industrial applications. Its offerings include steel casings, tubing products, mechanical and structural pipes, line pipes, cold-drawn pipes, etc.
On August 14, TS revealed that it finalized a definitive agreement to purchase the entire share capital of Bredero Shaw International BV, a subsidiary of Mattr, encompassing Mattr's pipe coating business. The transaction is valued at $166 million, inclusive of working capital, and will be conducted on a cash-free, debt-free basis.
The stock’s trailing-12-month net income margin of 24.75% is 75.1% higher than the 14.13% industry average. Its trailing-12-month ROTA of 19.03% is 135.9% higher than the 8.06% industry average. Furthermore, TS’ trailing-12-month ROTC of 18.56% is 75.1% higher than the industry average of 10.60%.
For the fiscal second quarter, which ended on June 30, 2023, TS’ net sales increased 45.5% year-over-year to $4.07 billion, while its gross profit rose 69.7% from the year-ago value to $1.81 billion.
In addition, the company’s net income and EPS amounted to $1.14 billion and $0.95, up 76.3% and 75.9% from the prior-year quarter, respectively. Also, its operating income grew 92.8% year-over-year to $1.28 billion.
The consensus revenue estimate of $3.24 billion for the third quarter (ending September 2023) represents a 9% increase year-over-year. The consensus EPS estimate of $1.23 for the current quarter indicates a 14.3% improvement year-over-year.
Moreover, the company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters.
Additionally, TS’ revenue and EBIT have grown at CAGRs of 31.5% and 109.9% over the past three years, respectively. While its EBITDA and total assets increased at CAGRs of 71.2% and 11.5% over the same period, respectively.
TS’ shares have gained 25.7% over the past three months to close the last trading session at $32.30.
TS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Momentum and a B for Growth, Value, Sentiment, and Quality. Within the same A-rated industry, it is ranked #2. Click here to see the other ratings of TS (Stability).
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NUE shares were trading at $172.58 per share on Monday afternoon, up $0.48 (+0.28%). Year-to-date, NUE has gained 31.79%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
Steel Stocks to Watch This September: Nucor (NUE) and Tenaris (TS) StockNews.com
