Top Steel Stocks for Q4 2022

The steel industry is part of the basic materials sector and consists of companies involved in steel production, mining, and related activities. Although steel historically has been a major U.S. industry, the number of steel mills that produce the metal has declined sharply in the past several decades due to foreign competition. Some of the big names in the global steel industry include U.K.-based Rio Tinto PLC, Brazil-based Vale SA, and Reliance Steel & Aluminum Co.

Steel demand increased by 2.7% in 2021. The World Steel Association forecasts that steel demand will continue to increase this year, but at a much slower pace, rising 0.4%. The ongoing Russian invasion of Ukraine has significantly disrupted the global steel industry. Both Russia and Ukraine have traditionally been among the largest steel exporters in the world.

Steel stocks, as represented by the VanEck Vectors Steel ETF (SLX), outperformed the broader market in the past year. SLX's total return was -7.3%, compared to the Russell 1000 Index's total return of -17.0%. These figures and all statistics in the tables below are as of Sept. 29, 2022.

Here are the top three steel stocks with the best value, the fastest growth, and the most momentum.

Best Value Steel Stocks

These are the steel stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Source: YCharts

• United States Steel Corp.: United States Steel is an American-based manufacturer and seller of steel products. It operates through three business segments: Flat-Rolled Products, U.S. Steel Europe, and Tubular Products.
• ArcelorMittal SA: ArcelorMittal is a holding company based in Luxembourg. Through subsidiaries, the company owns and operates steel, iron ore manufacturing, and coal mining facilities across Europe, the Americas, Africa, and Asia. In July, the company announced its most recent share buyback program for 60.4 million shares valued at roughly $1.4 billion. ArcelorMittal has announced a total of about $3.4 billion in share buybacks this year.
• Algoma Steel Group Inc.: Algoma Steel Group is a Canada-based integrated producer of rolled steel products. It serves the automotive, energy, manufacturing, construction, and defense industries.

Fastest Growing Steel Stocks

These are the top steel stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.

Source: YCharts

• Commercial Metals Co.: Commercial Metals manufactures steel reinforcing bar (rebar). It also produces merchant bar, steel fence posts, and wire rod. The company serves customers in North America and Europe. Commercial Metals announced in mid-September that it would acquire Advanced Steel Recovery LLC, a major supplier of recycled ferrous metals, for an undisclosed sum. The acquisition will boost Commercial Metals' footprint in the western U.S. The financial terms of the transaction were not specified in the announcement.
• Steel Dynamics Inc.: Steel Dynamics is a carbon-steel producer and metals recycler. The company sells flat-rolled steel sheet, structural beams, steel bars, and other products. Steel Dynamics reported Q2 2022 earnings results on July 20. Net income nearly doubled year-over-year (YOY) on robust growth in net sales, driven by both higher selling values and shipments, among other factors.
• Nucor Corp.: Nucor is a company that manufactures steel and steel products largely by recycling scrap metal. It makes bars, beams, sheet, and plate, electrical conduit, joists, and girders, among other items. The company owns operations throughout North America. On Sept. 15, Nucor announced a cash dividend of $0.50 per common share, payable on Nov. 10 to shareholders as of Sept. 30, 2022.

Steel Stocks With the Most Momentum

These are the steel stocks that had the highest total return over the last 12 months.

Source: YCharts

• Reliance Steel & Aluminum Co.: Reliance Steel & Aluminum is a diversified metal and metals service company. It offers metals processing services and distributes roughly 100,000 different metal products.
• Steel Dynamics Inc.: See company description above.
• Commercial Metals Co.: See company description above.

The Impact of Tariffs on Steel Stocks

U.S. steel imports from many countries have been subject to a 25% tariff since March 2018, when former President Donald Trump imposed the duty in the name of national security under Section 232 of the Trade Expansion Act of 1962. The White House introduced the tariffs to protect the U.S. steel industry, which at the time faced challenges from an oversupply of cheaper imported steel. Proponents of the tariffs argue that they increased domestic steel mill utilization from around 70% in 2018 to 85% in 2022, while critics say the levies have hurt U.S. manufacturers in the construction, automotive, and infrastructure industries through rising steel prices caused by supply shortages.

From a performance standpoint, steel tariffs have boosted the profits of U.S. steel producers, with leading industry names U.S. Steel, Nucor Corporation (NUE), and Steel Dynamics all reporting record profits in the years since their imposition. The VanEck Steel ETF has returned 23% over the past four years, generating similar gains to the Dow Jones Industrial Average (DJIA) during the same period. More recently, the steel group has benefited from a sharp rebound in industrial activity amid the pandemic economic recovery.

Advantages of Steel Stocks

Increased Infrastructure Spending: Steel stocks stand to benefit from increased federal infrastructure spending. In November 2021, lawmakers passed a $1.2 trillion infrastructure package, allocating a significant investment to upgrade the nation's roads, bridges, and railways over the next five years. Moreover, President Joe Biden has mandated that infrastructure upgrades and projects use American steel—a boon for U.S. steel-producing companies.

Attractive Valuations: As of September 2022, steel stocks trade at attractive valuations vs. their historical averages. For instance, Pittsburg-based U.S. Steel trades at 5.71 times forward earnings, below its five-year average of seven times earnings. Likewise, Nucor and Steel Dynamics trade at respective 18% and 29% discounts to their longer-term forward earnings multiples. Additionally, U.S Steel and Steel Dynamics have grown their cash pile considerably over the past year, positioning both producers for operational expansion should they choose.

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