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US Steel Companies Embrace Their Stocks amid Investors’ Apathy

Mohit Oberoi, CFA - Author
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Nov. 20 2020, Updated 1:29 p.m. ET

US steel stocks

US steel stocks are having a dismal run so far in 2018. Based on September 6 closing prices, U.S. Steel (X) and AK Steel (AKS) have lost 15.5% and 25.3%, respectively. Cleveland-Cliffs (CLF) has bucked this trend, and the stock is up 44.0% year-to-date (or YTD). In comparison, the SPDR S&P 500 ETF (SPY) has gained 8.9% YTD.

US steel prices are still hovering near multiyear highs despite the recent softness. Nucor (NUE) and Steel Dynamics posted record earnings in Q2 2018 as higher steel prices and relatively muted steel scrap prices lifted their margins.

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Investors’ apathy

Meanwhile, despite higher steel prices, investors are down on steel stocks despite their 2018 price action. Now, as markets have largely ignored steel companies’ strong earnings and low valuations, steel companies have embraced their own stocks. Earlier this week, Steel Dynamics announced a $750 million share buyback program. Yesterday, Nucor, the largest US-based steel producer, also announced a $2 billion share buyback program, which is a significant value and represents almost 10% of Nucor’s current market capitalization.

While buybacks could help restore investors’ faith in steel stocks, they might like to see the trade war de-escalate before embracing metals and mining stocks. Furthermore, in steel’s case, uncertainty over Section 232 tariffs and exemptions have also taken a toll on sentiments.

Read The Steel Industry’s Midyear Review: Outlook Gets Murky to look at the steel industry’s near-term drivers. You can also read US Steel Stocks Struggling despite Decent Fundamentals for recent steel industry indicators.

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