2 Lesser-Known Steel Stocks Rated Strong Buy

The steel prices are picking up with a revival in demand across end-use markets, such as construction and automotive, as industries begin their return to  pre-pandemic production levels. This is evidenced by  VanEck Vectors Steel ETF’s (SLX) 59.5% returns over the past six months. Also, Moody’s Investors Service has revised the outlook for the global steel industry to stable.

Moreover, with President Biden’s desire  to reestablish the United States as one of the biggest competitive markets with respect to the global economy, the steel industry should continue moving in an upward trajectory through the remainder of 2021 and beyond.

With established steel manufacturing companies trading at sky-high valuations now on a  bullish market outlook, we think lesser-known industry players  Ternium S.A. (TX – Get Rating) and Insteel Industries, Inc. (IIIN – Get Rating), which are currently trading at discounted valuations, should deliver higher returns.

Ternium S.A. (TX – Get Rating)

Based in Luxembourg, TX manufactures and processes finished and semi-finished steel products and iron ore, which are sold either directly to steel manufacturers, steel processors or end users. The company operates through two segments: Steel and Mining. It  serves customers active in the automotive, home appliances, HVAC, construction, capital goods, container, food and energy industries through its manufacturing facilities, service center and distribution networks, and advanced customer integration systems.

In terms of forward price/sales, the stock is currently trading at 0.70x, 54.6% lower than the industry average  1.55x.

During the third quarter of 2020, the coronavirus pandemic’s impact on steel demand in the Americas lessened significantly, allowing all of TX’s industrial facilities to resume  normal production rates. TX’s total steel shipments have increased 16.2% sequentially to 2.85 million tons in the third quarter, ended September 30, 2020. In Mexico, the company’s main steel market, shipments recovered 23% sequentially to 1.4 million tons. The company’s manufacturing industries continued ramping up their facilities during the third quarter, and activity in the construction sector slightly improved.

TX’s net sales have increased 22.5% from the previous quarter to $2.14 billion, while its EBITDA has risen 57.8% sequentially to $353.40 million, yielding an EBITDA margin of 17%, up 400 basis points over the three-month period. Its earnings per ADS have improved 236.4% sequentially to $0.74 over the same period.

Analysts expect TX’s revenues to grow 9.2% year-over-year to $2.46 billion in the about-to-be-reported quarter, ending December 31, 2021. A consensus EPS estimate of $1.02 for the fourth quarter represents  a 183.3% improvement from the year-ago value. The stock has gained 73.2% over the past six months.

TX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

TX has a B grade for Quality, Value and Sentiment. Within the A-rated Steel Industry, it is ranked #4 of 35 stocks.

In total, we rate TX on eight different levels. Beyond what we stated above, we also have given TX grades for Stability, Growth and Momentum. Get all of TX’s ratings here.

Insteel Industries, Inc. (IIIN – Get Rating)

IIIN manufactures and markets steel wire reinforcing products for concrete construction applications. Its concrete reinforcing products consist of two product lines: prestressed concrete strand (PC strand) and welded wire reinforcement (WWR). The company’s products are sold primarily to manufacturers of concrete products and concrete contractors for use, primarily, in nonresidential construction applications.

In terms of its non-GAAP forward p/e, the stock is currently trading at 15.72x, 22% lower than the industry average  28.41x.

In  January, the International Trade Commission ruled…

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