which is why i didnt post it before but since we have a dtc lock....
This is the important part for our purposes and i added bolding of such in the article:
Deutsche Bank and mining giant Rio Tinto predict steel prices will rise at least 3% annually over the next few years. China Iron and Steel Association, a nonprofit organization that has more than 100 key members from top steel companies and institutions in China, forecasts growth of 4%-5% annually over the next few years.
This Stock is Likely Headed Much Higher
In September, I told you to bet against the “smart money” and buy steel stocks .
I said the sector was ready to stage a huge rebound… and traders could see big, double-digit gains in the short term.
In less than four months, steel stocks surged.
Now, investors who missed the rally have another chance to get in.
Let me explain…
In September, steel was one of the world’s most hated sectors.
AK Steel and U.S. Steel were down an average of 75% since early 2011.
The S&P 500 was up 30% in the same time frame.
The “smart money” was betting on steel stocks heading lower. But I disagreed.
You see, in 2011 and 2012, the U.S. economy was growing at a slow 2% rate. Europe was going through a credit crisis. That meant less demand for houses, construction, and cars. These are the biggest end markets for steel. And it caused most steel-related stocks to fall.
But the Federal Reserve was doing everything in its power to stimulate the U.S. economy.
And by mid-2013, the European credit crisis was easing.
In other words, many of the headwinds that pushed steel stocks lower no longer existed. And even the slightest bit of good news would push these stocks significantly higher.
In less than four months, steel stocks surged. As you can see below, AK Steel jumped 140% and U.S. Steel increased almost 60%. These names easily outperformed the S&P 500, which only gained 11%.
But following this huge run-up, steel stocks reversed course. Today, AK Steel is down about 19% from its December high. And U.S. steel has declined about 16% from its high early last month.
The fall was due to U.S. manufacturing activity easing in January – which was likely due to the extreme weather conditions last month. Emerging markets like China, Brazil, and Russia are also slowing. In short, we are seeing headwinds similar to those that pushed steel stocks lower from 2011 to mid-2013.
This is creating another huge opportunity to buy steel stocks…
While emerging markets around the world might be slowing, developed markets are growing. According to the International Monetary Fund, the growth gap between emerging markets (China, Brazil, and India) and developed markets (U.S., Germany, and Canada) is the smallest it has been in over 13 years. In short, we are seeing a slowdown in emerging markets . But we are seeing stronger growth in developed nations . So demand for steel will remain strong.
Plus, Deutsche Bank and mining giant Rio Tinto predict steel prices will rise at least 3% annually over the next few years. China Iron and Steel Association, a nonprofit organization that has more than 100 key members from top steel companies and institutions in China, forecasts growth of 4%-5% annually over the next few years.
These trends bode well for steel stocks. My favorite name right now is Steel Dynamics (STLD) .
I’ve mentioned this stock several times in Growth Stock Wire . My Small Stock Specialist subscribers are up over 45% in this stock, including dividends. But following [recent] earnings results, shares are likely headed much higher.
In its earnings report, Steel Dynamics highlighted the strengthening of commercial-construction fundamentals… The company is taking on more orders and expects construction to outpace the 2010-2013 period. Steel Dynamics is also rolling out new products for railroads and the automotive and oil industries.
Specifically, the company is expanding specialty bar quality (“SBQ”) steel capacity over the next six months. SBQ – or pliable, higher-quality carbon and alloy steel – is commonly used to build engines, transmissions, valves, and pipelines. SBQ is also a high-margin product. That means Steel Dynamics generates more profit on each sale of its SBQ steel than it does from its other products.
Steel Dynamics trades at just 11 times forward earnings. That’s much cheaper than the average S&P 500 company, which trades at 15 times earnings. The company also generates tons of cash flow and pays a large 2.6% dividend. That high yield should limit your downside if this market corrects another 5% from here.
I expect earnings to grow by at least 30% annually over the next two years. That’s about five times faster than the market. And based on my estimates, the stock has at least 50% more upside over the next 12-18 months.
Steel stocks are a buy on this recent pullback. And Steel Dynamics should easily outperform its peers through 2014 and beyond.
Good investing,
Frank Curzio
Source: The Growth Stock Wire
