Despite several macro uncertainties, the metal industry’s long-term outlook looks promising, driven by strong demand for metal and metal-manufactured products. Moreover, an upsurge in urbanization, rapid industrialization, and several technological advancements in metal manufacturing should propel the industry’s expansion.
Amid the backdrop, investors could consider buying fundamentally sound metal stocks Rio Tinto Group (RIO), Valmont Industries, Inc. (VMI), and Ferroglobe PLC (GSM) now.
Despite lingering macroeconomic headwinds, the metal industry is poised to witness significant growth in the foreseeable years, driven by high demand for metal and metal-produced products from several end-use industries, including automotive, aviation, energy & power, construction, manufacturing, electrical & electronics, packaging, and others.
The Bipartisan Infrastructure Investment and Jobs Act, signed into law by President Joe Biden in November 2021, authorized $550 billion in new federal spending over the next five years for transportation and infrastructure to boost the economy.
Moreover, the rise in infrastructure development projects in the United States should sustain the demand for metals. Last year, the federal government spent a record $36.6 billion directly on infrastructure and transferred another $94.50 billion to states.
Furthermore, emerging economies such as China, India, and Brazil should continue boosting demand for steel and other metals in the upcoming years. Several factors contribute to continued metal demand in emerging markets, including population growth, rapid urbanization, and infrastructure development.
Like other industries, the metal manufacturing industry is also undergoing a digital transformation. With the use of Artificial Intelligence (AI), the Internet of Things (IoT), and automation, metal manufacturers experience improved efficiency and reduced costs.
As per a report by Allied Market Research, the global metal & metal manufactured products market is expected to reach $18.50 trillion by 2030, growing at a CAGR of 5.2%.
Given the industry’s promising prospects, quality metal stocks RIO, VMI, and GSM could be solid additions to your portfolio.
Let’s take a closer look at the fundamentals of these stocks:
Rio Tinto Group (RIO)
RIO, headquartered in London, the United Kingdom, engages in global exploration, mining, and processing of mineral resources. The company operates through Iron Ore; Aluminium; Copper; and Minerals segments.
On August 1, RIO announced that it would acquire Pan American Silver’s 57.74% stake in Agua de la Fada for $45 million, coupled with the grant of net smelter returns royalties. It also acquired 100% of nearby concessions known as Meridian Property for $550,000.
Such developments should position RIO as a major player in the copper market, a critical material in the energy-transition process, thereby driving its revenue stream and business growth.
On July 21, RIO and Giampaolo Group signed an agreement to acquire a 50% equity stake in the latter’s Matalco business for $700 million. This deal would involve forming a joint venture between the two entities to manufacture and market recycled aluminum products.
This deal might help RIO provide a wide variety of high-quality and low-carbon, primary, recycled, and blended aluminum products and become a significant supplier to clients intending to reduce their carbon footprint.
On July 20, RIO announced it would invest $498 million in its Kennecott operation near Salt Lake City, Utah, to increase copper production. Once operational, the North Rim Skarn (NRS) is expected to produce about 250 thousand tonnes of additional mined copper over the next ten years.
During the second quarter that ended June 30, 2023, aluminum production increased by 11.4% year-over-year to 814 thousand tons. In addition, copper-mined production and iron ore production grew 3.2% and 2.9% year-over-year to 130.50 thousand tons and 70,632 thousand tons, respectively.
RIO reported consolidated sales revenue of $26.67 billion in the six months that ended June 30, 2023. The company’s underlying EBITDA and free cash flow came in at $11.73 billion and $3.77 billion, respectively. Also, profit after tax attributable to owners of RIO was $5.12 billion for the period.
RIO’s shares have increased 5.4% over the past year to close the last trading session at $64.05.
RIO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RIO has a B grade for Value, Stability, and Quality. Out of the 31 stocks in the B-rated Industrial - Metals industry, it is ranked #4.
To see the other ratings of RIO for Momentum, Growth, and Sentiment, click here.
Valmont Industries, Inc. (VMI)
VMI produces and sells metal products internationally. The company operates through two segments: Industrial and Agricultural. It has a diverse portfolio of products ranging from pre-stressed concrete, composite, and hybrid structures for lighting, transportation, and telecommunications equipment, to surface coatings to prevent corrosion of metals.
On July 13, VMI opened a sustainably-focused concrete utility pole manufacturing facility in Bristol, Indiana, to support the green energy transition to electrification. The Bristol facility is the first plant of its kind built in the Northeast/Midwest region of the nation, meeting the growing demand of the area.
The facility would provide customers with additional utility pole options while improving freight costs and lowering emissions from transportation. This new facility should bode well for the company.
For the second quarter that ended July 1, 2023, VMI’s gross profit grew 12.6% from the year-ago value to $329.40 million. Its adjusted operating income increased 12% year-over-year to $137.64 million. The company’s adjusted net earnings rose 16.4% year-over-year to $92.74 million. Also, its adjusted EPS was $4.37, compared to $3.70 in the previous year’s quarter.
Analysts expect VMI’s revenue for the fiscal year (ending December 2024) to increase 6% year-over-year to $4.63 billion. The company’s EPS for the ongoing year is expected to grow 13.3% from the prior year to $15.66. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of VMI have declined 6% over the past year to close the last trading session at $255.47.
VMI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system.
VMI has an A grade for Momentum. Among the 31 stocks in the Industrial - Metals industry, it is ranked #5.
Click here to see the other ratings of VMI for Value, Quality, Sentiment, Growth, and Stability.
Ferroglobe PLC (GSM)
Headquartered in London, the United Kingdom, GSM is a global player in the silicon and specialty metals industry. Its offerings include silicone chemicals, ferrosilicon products, and silica fume, among others. It serves silicone chemical, aluminum, and steel manufacturers; auto companies and their suppliers; ductile iron foundries; and concrete producers.
On July 21, GSM announced the notice of redemption of $150 million of its 9.375% senior secured notes due 2025.
Beatriz Garcia-Cos, GSM’s Chief Financial Officer, said, “We are pleased to announce a significant debt redemption, which is yet another example of our steadfast progress in strengthening our balance sheet. This transaction reduces our outstanding senior secured notes balance by half to approximately $150 million, providing the company with more financial flexibility going forward while saving nearly $15 million in annual interest expense.”
In the first quarter of fiscal 2023, GSM’s net profit attributable to the parent was $21 million, or $0.11 per share, compared to a net profit attributable to the parent of $6.20 million, or $0.03 per share in the fourth quarter. Also, the company’s EBITDA was $44.80 million, up 49.7% quarter-over-quarter. Its operating cash flow grew 14% quarter-on-quarter to $134.53 million.
Analysts expect GSM’s EPS for the next fiscal year (ending December 2024) to increase 77.9% year-over-year to $1.05. Likewise, the consensus revenue estimate of $1.98 billion for the same period indicates a 7.6% rise year-over-year.
GSM’s stock has gained 3.3% over the past month and 38.5% year-to-date to close the last trading session at $5.07.
It’s no surprise that GSM has an overall rating of B, which equates to Buy in our proprietary rating system.
GSM has an A grade for Quality and Grade B for Value, Sentiment, and Momentum. It is ranked #7 out of 31 stocks in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have GSM’s ratings for Growth and Stability. Get all GSM ratings here.
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RIO shares were trading at $63.61 per share on Tuesday afternoon, down $0.44 (-0.69%). Year-to-date, RIO has declined -7.77%, versus a 17.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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