President Biden’s infrastructure bill to revive the country’s infrastructure sector should boost the steel industry. Furthermore, rising demand from the manufacturing and construction industries amid the current economic recovery should drive the industry’s growth in the coming months. Thus, we believe mid-cap steel companies Reliance Steel & Aluminum (RS), Ternium S.A. (TX), and Aperam S.A. (APEMY) should deliver solid returns in the near term.

On June 24, President Biden announced his support for a $1.2 trillion Bipartisan Infrastructure Framework, which, if passed into law, would be the largest long-term investment in U.S. infrastructure in nearly a century. This infrastructure plan is at the core of Biden’s “Build Back Better” agenda to rebuild the U.S. economy and eliminate prevailing structural weaknesses.

The potentially transformational investment creates room for immense opportunities and growth  for the steel industry, owing to steel’s widespread use in construction. Furthermore,  rising construction and manufacturing activities with the economy’s reopening should keep driving the demand for steel. The domestic raw steel production capability utilization rate hit 82.3% at  the beginning of June, its highest rate since early 2020. A recent survey conducted by S&P Global Platts indicates that finished-steel prices in the United States are expected to rise throughout this month.

Considering the steel industry’s growth prospects, we think mid-cap steel stocks Reliance Steel & Aluminum Co., Ternium S.A., and Aperam S.A.  could generate solid returns in the coming months.

Reliance Steel & Aluminum Co. 

RS is the largest metals service center company in North America. The Los Angeles-based company provides a wide range of products from facilities spread across more than 300 locations in 40 states and 13 countries. It has a $9.74 billion market cap.RS’ net sales increased 10.3% year-over-year to $2.84 billion in the fiscal first quarter, ended March 31. Its operating income stood at $378.3 million, up 266.2% from the same period last year. Its net income grew 332.6% from its year-ago value to $266.9 million. And the company’s EPS increased 347.8% year-over-year to $4.12.

A $3.03 billion  consensus revenue estimate  for its  fiscal third quarter (ending September 2021) represents a 45.3% increase year-over-year. The Street expects the company’s EPS to rise 108.6% from the prior year quarter to $3.9 in the current quarter. RS has an impressive earnings surprise history also; it beat the consensus EPS estimates in three out of trailing four quarters.

RS has gained 27.7% over the past six months to close yesterday’s trading session at $152.92. The stock has gained 64.5% over the past year.

RS has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RS also has an A grade for Quality, and a B grade for Growth, Sentiment, and Momentum. Among the 35 stocks in the A-rated steel industry, RS is ranked #7. Click here to view additional RS ratings for Value and Stability.

RS shares were trading at $152.38 per share on Friday afternoon, down $0.54 (-0.35%). Year-to-date, RS has gained 28.37%, versus a 16.73% rise in the benchmark S&P 500 index during the same period.

Ternium S.A. 

With a market cap of $7.62 billion, TX is a leading flat steel producer operating through two segments—Steel and Mining.  The company offers a wide array of high value-added steel products for customers active in the automotive, home appliances, HVAC, construction, capital goods, container, food and energy industries. TX is headquartered in Luxembourg.

TX’s net sales increased 43.1% year-over-year to $3.25 billion in its fiscal first quarter, ended March 31. Its operating income grew 567.5% from its  year-ago value to $905.8 million, while its profit for the period improved 3,742.8% year-over-year to $706.7 million. The company’s earnings per ADS increased 5,216.7% year-over-year to $3.07.

Analysts expect TX’s revenues to increase 90% year-over-year to $3.85 billion in the current quarter, ending September 30, 2021. A $2.94  consensus EPS estimate for the current  quarter indicates a 297.3% rise from the same period last year. TX has an impressive earnings surprise history also; it beat consensus EPS estimates in three out of trailing four quarters. Shares of TX have gained 163.4% over the past year, and 33.5% year-to-date.

It is no surprise that TX has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The stock also has an A grade for Growth, Sentiment, and Quality, and a B grade for Value and Momentum. It is ranked #1 in the steel industry. To see additional TX ratings, click here.

Note that TX is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

Aperam S.A.

Based in Luxembourg, APEMY is a global player in the production and sale of stainless and specialty steel products. The company operates through three segments: Stainless & Electrical Steel; Services & Solutions; and Alloys & Specialties. It has a $4.22 billion market capitalization.

On May 6, APEMY signed a share purchase agreement with Franz Haniel & Cie. Gmbh to acquire ELG, a global leader in stainless and alloys recycling. This acquisition should strengthen APEMY’s position in the global recycling industry and help the company to create more value for its stakeholders.

APEMY’s sales increased 12.2% year-over-year to €1.18 billion ($1.40 billion) in the fiscal first quarter, ended March 31. Its operating income grew 311.8% from its year-ago value to €140 million ($165.93 million). APEMY’s net income came in at €116 million ($137.48 million), indicating a 300% rise year-over-year. The company’s EPS increased 302.8% year-over-year to €1.45 ($1.09).

A $1.57 billion consensus revenue estimate for the fiscal third quarter, ending September 2021, indicates a 58.8% improvement from the same period last year. APEMY has gained 29.1% year-to-date and 90.1% over the past year.

APEMY has an overall A rating, which equates to Strong Buy in our proprietary rating system. APEMY has a B grade for Momentum, Quality, Stability, and Sentiment. It is ranked #5 in the steel  industry.

Beyond what we’ve stated above, we have also rated APEMY for Growth and Value. Click here to view all APEMY ratings.