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Are Analysts Getting Wary of the Run-Up in US Steel and Cliffs?

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Nov. 20 2020, Updated 12:57 p.m. ET

Analyst sentiments

Analyst recommendations and ratings are among the most important market sentiment indicators for investors. Analysts’ ratings tell you how bullish or bearish analysts are on a particular company or industry.

At the extreme, sentiments can be an indicator of a change in direction going forward. Generally, when everyone is bearish and dumping stocks, it could mean the bottom and better times ahead, and vice versa.

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Steel upgrades

After Trump’s election win, most analysts are turning optimistic on the US steel sector, given his stance on protectionism and infrastructure focus. Jefferies upgraded U.S. Steel (X) from “hold” to “buy” with a target price of $26. (X)+to+Buy+Following+Trump+Win/12224297.html">Jefferies stated: “The US steel industry should stand out as a unique beneficiary of a Trump presidency. Protectionism will significantly rise…the US is already short steel, and falling imports will improve domestic pricing power.”

Morgan Stanley (MS) has also turned bullish on US steel (SLX) stocks after the election. Its analyst Evan Kurtz wrote: “We believe Trump’s plans for infrastructure spending and trade protection, as two of the most digestible of his proposals, could be early in the queue.” Kurtz thus upgraded U.S. Steel (X) and AK Steel (AKS) from “equal weight” to “overweight.”

Better fortunes for the US steel sector also bode well for Cliffs Natural Resources (CLF), the only North American pure-play iron ore pellet supplier. Kurtz thus upgraded Cliffs from “underweight” to “equal weight” and increased its target price from $3 to $9.

J.P. Morgan (JPM) also increased the target prices for steel stocks as well as for Cliffs on November 29. JPM has an “overweight” rating on CLF. It raised the target price from $7 to $10.

Followed by downgrades

Macquarie, on the other hand, downgraded six steel stocks on November 29. AKS, Nucor (NUE) and Steel Dynamics (STLD) were three of those names. This follows a steep rally following Donald Trump’s win.

Macquarie analyst explained: “Most steel stocks have exceeded our target prices, and still exceed them even after we raised them to reflect the impact of this price move to $550–$560. While we expect the price current move to $550–$560 a ton to succeed, we don’t see further moves beyond that as likely. Steel prices will be higher than we earlier thought. But at this point, steel prices look exposed to a stronger US dollar.”

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