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Steel is tough, but not as hard as investors might think.
Shares of steel companies sank on Wednesday amid a reshuffle of Goldman Sachs ratings and Washington’s spending deadlock, including the delay of the massive infrastructure bill.
The losses end – or at least put on hold – the epic tear that merchandise and inventory have suffered over the past year. Steel prices have quadrupled from pandemic-induced lows, leaving investors with big gains and high volatility.
The company that felt the brunt of Goldman’s change the most was United States Steel (ticker: X).
Analyst Emily Chieng lowered Hold’s sell share and lowered her price target to $ 21 per share from $ 34.
At noon,
American steel
was down 7.8%. The
S&P 500
and
Dow Jones Industrial Average
were 0.8% and 1%, respectively.
Chieng highlighted two issues for US steel, one related to the market and the other specific to the company.
The first is simply the high price of steel, driven in part by high demand and a supply lag caused by insufficient production, the analyst wrote in a report. “We believe the market can anticipate a correction in the coming months as additional import volumes arrive and new capacity begins to operate,” she noted.
Falling commodity prices are not good for any commodity producer. For US Steel in particular, the drop in revenue would hurt even more if Chieng was right to expect the company to spend more capital to improve its operations. These investments will eat away at free cash flow.
Chieng also demoted Nucor (NUE) to Hold from Buy and reduced its price target to $ 108 from $ 123 per share.
But the analyst is not down on all steel stocks. she improved
Commercial metals
(CMC) and
Cleveland cliffs
(CLF) and increased their price targets. Trade metals moved to Hold from Sell and $ 33 from $ 31; Cliffs upgraded to Buy from Hold and $ 24 from $ 26.
Nucor, Commercial and Cliffs were down on the day by 4.1%, 1.5% and 4.2%, respectively.
Besides Goldman’s prediction of falling steel prices, congressional inaction weighed on stocks as any infrastructure spending would benefit steel producers. .
The Senate has passed a $ 1,000 billion infrastructure package, but the measure is blocked in the House by progressive Democrats who want $ 3.5 trillion for a social safety net that includes affordable child care and lower costs for higher education.
Chieng is influential, but she’s not the only analyst. Others favor
Steel dynamics
(STLD) and Falaises. About 69% and 60% of analysts who cover companies rate Buy stocks. Chieng has Steel Dynamics as a purchase. About 30% value US Steel and Nucor Buy stocks. Commercial Metals has a grip on all levels, according to Bloomberg.
These five steel inventories are up about 50% year-to-date, but are down about 14% on average over the past month.
Write to Al Root at [email protected]
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