Steel Producers Smelting Revenue and Earnings Growth

On Tuesday, the Institute of Supply Management came out with their August 2014 Manufacturing data. The data showed that economic activity, new orders, and production all increased in the month of August. These positive data points are important indicators of an improving economy.

Further, the report told us that manufacturing growth was across the board, with 17 of the 18 segments in manufacturing sector increasing between July and August of this year.

So who is to benefit from this increased manufacturing data?

Steel for One

Over the past year and a half the steel industry has seen some fluctuation in prices for Hot-rolled Brand (HRB), Cold-rolled Coil (CRC), and Standard Plate (Plate), but of late, the prices have been steadily increasing. If you look at the table below, you will see the change in steel prices (in the 3 most common forms), over the past 15 months. All three segments are showing double digit growth in price levels.

As you can see in the table above, the prices for each type of steel has increased; HRB has risen 17.1%, CRC has risen 17.1%, and Plate has increased 22.56% since late May 2013. *HRB record peak of $1,203 in July of 2008*

So now you combine the positive manufacturing data with increasing steel prices, you have an industry that has rising prices, and increasing demand. YeeHaw! We have a growth winner!

How to Pick the Right Steel Producer Stocks

Utilizing the Zacks Industry Ranking system, we have found a couple steel producers that are poised to gain from this positive economic data.

Stocks To Consider

AK Steel Holding Group (AKS) a Zacks Rank #2 (Buy) produces flat-rolled carbon, stainless and electrical steel products, as well as carbon and stainless tubular steel products, for automotive, appliance, construction and manufacturing markets.

After this companies second quarter beats on both earnings and revenue, the Zacks Consensus Estimate for Q3, Q4, and FY 2014 all increased: Q3 jumped from $0.16 to $0.26, Q4 rose from $0.17 to $0.20, and FY 2014 increased from $0.00 to $0.13. Further, this company has a solid history of beating their earnings expectations, and has a four quarter average positive earnings surprise of 71.75%.

This company announces third quarter earnings and revenue numbers on 10/28.

United States Steel Corp (X) a Zacks Rank #2 (Buy) is an intergrated steel producer of flat-rolled and tubular products, and manufactures and sells a variety of steel mill products, coke and taconite pellets. The company has plants in Indiana, Alabama, Pennsylvania, and Europe.

Like AKS, United States Steel Corp exceeded earnings and revenue expectations in Q2, and subsequently saw their estimates for the remainder of the year increase. Q3 jumped to $0.90 from $0.51, Q4 rose to $0.78, from $0.52, and FY 2014 rocketed to $2.11 from $1.13. Further, this company also has a solid history of beating earnings expectations with a four quarter average positive earnings surprise of 103.68%.

This company announces third quarter earnings and revenue numbers on 10/27.

Bottom Line

Most if not all economic indicators are showing a growing economy, and at the base is manufacturing. With manufacturing increasing, we will see the usage and price of steel continue to rise. Therefore, it would be wise to look into the Steel Producers Industry for some mid to long term gains.