Driven by increasing demand from developing countries, infrastructure investment, and technological advancements, the steel market is expected to thrive. In light of this, we think it could be wise to capitalize on the industry’s tailwinds by investing in fundamentally strong steel stocks Tenaris S.A. (TS), Worthington Industries, Inc. (WOR), and Friedman Industries, Incorporated (FRD), which are in high demand.
The steel industry is an essential component of the global economy, as steel is used in various applications, including construction, transportation, energy, and packaging. In recent years, the steel market has seen a steady growth in demand due to increasing industrialization and urbanization.
The global steel market is expected to grow at 5.4% CAGR until 2029.
Furthermore, private and public investments in infrastructure, as well as residential housing, is likely to provide a boost to the stainless-steel demand. The U.S. stainless steel market is expected to be driven by demand in mechanical, chemical, and energy applications.
The global stainless-steel market is expected to grow at a CAGR of 7.4% until 2030.
Let’s discuss the stocks mentioned above in detail:
Tenaris S.A. (TS)
Based in Luxembourg, TS, and its subsidiaries produce and sell seamless and welded steel tubular products; and provide related services for the oil and gas industry and other industrial applications.
In terms of forward EV/Sales, TS is currently trading at 1.20x, which is 45.2% lower than the 2.19x industry average. Its 4.26 forward EV/EBIT multiple is 58.1% lower than the 10.16 industry average.
The company pays an annual dividend of $0.68, which translates to a yield of 2.08% on the prevailing price level. Its four-year average yield is 2.69%.
TS’ net sales increased 59% year-over-year to $4.07 billion in its fiscal second quarter that ended June 30, 2023. Its operating income rose 179% year-over-year to $1.28 billion. Moreover, the company’s income for the period improved 124% year-over-year to $1.14 billion.
Analysts expect TS’ revenue to increase 5.8% year-over-year to $3.15 billion in the fiscal third quarter ending September 2023. Its EPS is estimated to increase 8.4% year-over-year to $1.16 in the same quarter. It surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 28.1% over the past year to close the last trading session at $33.01.
TS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TS has an A grade for Momentum and a B in Value and Quality. It has ranked #6 in the A-rated 34-stock Steel industry.
In addition to the POWR Ratings highlighted above, one can see TS’ Growth, Stability, and Sentiment ratings here.
Worthington Industries, Inc. (WOR)
WOR is an industrial manufacturing company that focuses on value-added steel processing, laser welded solutions, electrical steel laminations and manufactured consumer, building and sustainable mobility products in North America and internationally. It operates through Steel Processing; Consumer Products; Building Products; and Sustainable Energy Solutions segments.
The stock’s 0.81 forward P/S multiple is 32.9% lower than the 1.20 industry average. In addition, its 0.91 forward EV/Sales multiple is 42.4% lower than the 1.58 industry average.
On July 3, 2023, WOR reported that its Brazilian subsidiary Confab Industrial S.A., together with its affiliates Ternium Investments and Ternium Argentina, all of which compose the T/T group within the Usiminas control group, completed the previously announced acquisition of 68.7 million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS from Nippon Steel Corporation, Mitsubishi and MetalOne, pro rata to their current participations in the T/T group within the Usiminas control group, at a price of $2.04 per ordinary share.
On June 28, WOR declared a quarterly dividend of $0.32 per share, payable on September 29, 2023.
While WOR’s four-year average dividend yield is 2.22%, the company pays an annual dividend of $1.28, translating to a dividend yield of 1.78%. Also, it has raised its dividend payout at a CAGR of 8.9% over the past three years.
WOR’s net sales stood at $1.23 billion in its fiscal fourth quarter (ended May 31, 2023). Its gross margin rose 45.9% from its year-ago quarter to $244.37 million. The company’s net income increased 56.1% year-over-year to $134.16 million, while its EPS grew 62.1% year-over-year to $2.61.
Street expects WOR’s EPS to rise 24.8% year-over-year to $2.01 in the current quarter ending August 2023. Its revenue is expected to be $1.23 billion for the same quarter. Also, the company has an impressive earnings surprise history; it surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 42.2% year-to-date to close its last trading session at $70.67.
WOR’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
WOR has a B grade for Sentiment and Quality. It ranks #8 in the same industry.
Click here to access additional WOR ratings (Growth, Value, Momentum, and Stability).
Friedman Industries, Incorporated (FRD)
FRD is a manufacturer and processor of steel products with operating plants in Hickman, Arkansas; Decatur, Alabama; and Lone Star, Texas. The company operates in two segments: coil products and tubular products.
In terms of trailing-12-month EV/Sales, FRD is trading at 0.30x, 79.9% lower than the industry average of 1.48x. The stock’s trailing-12-month P/S of 0.23x is 79.6% lower than the 1.15x industry average.
On June 20, the company declared a dividend of $0.02 per share on its common stock, payable to shareholders on August 11, 2023.
FRD’s four-year average dividend yield is 1.28%, and its current dividend of $0.08 translates to a 0.45% yield on prevailing prices. Also, its dividend payout has grown at a 2.7% CAGR over the past five years.
FRD’s net sales increased 65.4% year-over-year to $124.19 million for the fiscal fourth quarter that ended March 31, 2023. Its earnings from operations amounted to $7.25 million compared to a loss from operations of $4.27 million in the year-ago quarter. The company’s net earnings came in at $6.31 million and $0.86 per share compared to a net loss of $7.47 million and $1.11 per share in the prior-year quarter.
The stock has gained 76.5% over the past nine months and 71.3% year-to-date to close the last trading session at $16.77.
It’s no surprise that the stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
FRD has an A grade for Growth and Value and a B for Sentiment. It has ranked #7 within the same industry.
Beyond what is stated above, we’ve also rated FRD for Momentum, Quality, and Stability. Get all FRD ratings here.
What To Do Next?
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TS shares were trading at $33.88 per share on Wednesday morning, up $0.87 (+2.64%). Year-to-date, TS has declined -1.13%, versus a 17.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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