Andrew Bary of Barron's writes this weekend: Looking for the cheapest stocks in the market now? Two | CLF Message Board Posts


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Msg  1272 of 1432  at  6/26/2022 1:04:25 AM  by

delt1970


Andrew Bary of Barron's writes this weekend: Looking for the cheapest stocks in the market now? Two industries stand out: home builders and steel makers.

Barrons screened for the 10 stocks in the S&P 500SPX +3.06% index, S&P Midcap 400, and S&P Smallcap 600 with the lowest price/earnings ratios based on projected 2022 earnings, using consensus estimates from FactSet. Among the group of 30 stocks in the three indices, 14 were home builders and steel producers, all trading for just two to four times this years estimates. Many of the home builders also trade around book value.

The common denominator in both groups is that investors dont think currently robust earnings will last. The stocks discount disastrous downturns for both industries that are unlikely to materialize. Home-building stocks have fallen 40% or more this year.

The losses in home builders and steel makers shares reflect a broad pullback in economically sensitive stocks. Yet, balance sheets have rarely been stronger for these industries, offering a financial cushion in a potential recession....

Steel stocks are among the most volatile. The companies generally had record first-quarter results and guided to similar performance in the current quarter.

Yet the stocks have been hammered on recession fears as steel prices, measured by hot-rolled coil steel, have fallen below $900 a ton from $1,500 earlier this year. Steel makers should still generate ample profits at current prices, suggesting the risk/reward is attractive.

Alan Kestenbaum, the CEO of Canadian steel maker Stelco Holdings STLC +4.10% (STZHF), says the steel market is becoming very challenging. Prices have been falling every single week.

The demand outlook is good. The auto industry, which accounts for 25% of U.S. steel demand, is operating below capacity due to chip shortages, and could boost production in 2023. Other key steel users, including infrastructure and energy, are also in good shape. One positive sign is industry consolidation. Four producers now account for over 80% of U.S. steel output.

U.S. Steel (X), at $19, trades for under two times 2022 earnings. The companys plan to build a big new mini mill for about $3 billion hasnt played well with some investors, who would like to see more cash returned to shareholders.

Cleveland-Cliffs CLF +5.10% (CLF), another big integrated steel producer, doesnt have grand expansion plans and has a shareholder-focused CEO in Lourenco Goncalves. Its stock, at $16, trades for three times projected 2022 earnings.

Industry leader Nucor (NUE), at $107, trades for four times earnings and yields nearly 2%. It has an attractive business mix, but its capital allocation is questionable after it recently agreed to pay $3 billion for a maker of garage doors at a huge premium above its own valuation.

Steel Dynamics (STLD), which, like Nucor, operates mini mills using scrap steel as an input, completed a major new mill this year in Texas. Its stock trades for $66, or three times earnings.

Stelco operates a lucrative single blast-furnace mill in Ontario and may have the groups most investor-oriented CEO in Kestenbaum. Stelco has boosted its dividend several times and bought back a lot of stock. The stock, at around $26, yields 3.6% and fetches just two times estimate 2022 earnings.

Ultracheap stocks can offer nice upside potential and a margin of safety. Home builders and steel qualify."


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Msg # Subject Author Recs Date Posted
1274 Re: cheapest stocks in the market now? ... steel makers. okie_flats 0 6/26/2022 10:21:33 PM
1275 Re: Andrew Bary of Barron's writes this weekend: Looking for the cheapest stocks in the market now? Two industries stand out: home builders and steel makers. dachmeister4u 0 6/27/2022 8:18:21 AM




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