Top Steel Stocks for Q2 2023

Steel companies, including Champion Iron Ltd., Reliance Steel & Aluminum Co., and Steel Dynamics Inc., are leading peers in revenue growth at a time when high interest rates and recession fears weigh on steel demand and temper the industry's rebound from Covid-19 disruptions.

Nonetheless, steel stocks have slightly outperformed the broader market over the past year. A key benchmark, the VanEck Vectors Steel ETF (SLX), rose 2% in the past 12 months, while the Russell 1000 Index ended the last 12-month period unchanged.

We look at the top three steel stocks in three categories: the best value, the fastest growth, and the best performance. All data are as of May 1.

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

• ArcelorMittal SA: ArcelorMittal is a holding company based in Luxembourg. The company owns and operates steel, iron ore manufacturing, and coal mining facilities across Europe, the Americas, Africa, and Asia through subsidiaries. On April 3, the company announced it had completed its share buyback program of more than 60 million shares which was instated in July.
• Stelco Holdings Inc.: Stelco Holdings is a Canada-based steel producer that supplies steel sheet products to the construction, automotive, and energy industries. The company trades OTC in the U.S. under the ticker STZHF.
• Algoma Steel Group.: Algoma Steel Group is a Canada-based integrated producer of rolled steel products. It serves the automotive, energy, manufacturing, construction, and defense industries. Algoma swung to a loss of $70 million in the third quarter of its 2023 fiscal year due to a dropoff in production and shipment levels. The company also announced a $0.05 quarterly dividend that was payable on March 31.

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 more than 1,000% were excluded as outliers.

Source: YCharts

• Champion Iron Ltd.: Champion Iron produces and sells iron ore concentrates internationally from its mines located in Eastern Canada. The company trades OTC in the U.S. under the ticker CIAFF.
• Reliance Steel & Aluminum Co.: Reliance Steel & Aluminum is a diversified metal and metals service company. It offers metal processing services and distributes roughly 100,000 different metal products. On May 1, Reliance Steel announced it had acquired Southern Steel Supply LLC for an undisclosed sum. The company released its first-quarter 2023 results on March 27, with its net income decreasing by 27% compared to the previous year, partially due to a lower average selling price for its metal products. 
• 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 Stocks With the Most Momentum

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

Source: YCharts

• Olympic Steel Inc.: Olympic Steel produces steel and other metal products such as plate steel, tin plates, processed carbon, and coated flat-rolled sheets. In January, the company acquired Metal-Fab Inc., which produces filtration products for industrial applications. Olympic Steel saw an increase of over $11 in its share price in the days following its 2022 earnings release when it reported revenue grew 11% from 2021.
• POSCO Holdings Inc.: POSCO Holdings is a South Korean-based company that produces iron and steel products and provides related services such as consulting and business support.
• Reliance Steel & Aluminum 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 increased steel prices and hurt U.S. manufacturers in the construction and automotive industries.

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 50% since the beginning of March 2018, generating similar gains to the Dow Jones Industrial Average (DJIA) during the same period.

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 May 2023, steel stocks trade at attractive valuations compared with their historical averages. For instance, Nucor's share price is also down by 5% percent over the past 12 months, leaving it with a PE ratio of 5.7, well below its 2020 high of about 40. Likewise, Pittsburg-based U.S. Steel is down 28% over the past 12 months. Additionally, U.S Steel has grown its cash pile considerably over the past year, positioning both producers for operational expansion should they choose.