Three Steel Stocks to Consider Buying

Three steel stocks to consider buying each are recommended by Citi Research.

Those three steel stocks to consider buying are seen as the premier providers in a slumping sector by research analysts at the investment firm. That sector overall is forecast to face slack demand, especially due to economic slowdowns in China and other parts of the world.

Mining equities tend to perform strongly during the winter months starting in October, based on almost three decades of seasonality analysis, but that did not happen in 2024, the Citi Research analysts wrote. December particularly performs strongly compared to other months on average but fell short of the norm at the end of last year, Citi Research wrote. The seasonality effect tends to be strong and at times overcomes the effects of any weakness in commodity or company fundamentals.

“However, this time around this effect seems to be absent and the miners underperformed during the last couple of months driven by several factors,” Citi Research assessed.

Three Steel Stock to Consider Buying: STLD

The previous strength during winter came primarily from China’s strong steel demand during the winter season. However, weakening Chinese lead indicators (e.g. a property and infrastructure slowdown, among others) and tariff uncertainties from Trump’s presidency, outlook for steel shows slack, limit the impact of seasonality support, Citi Research opined.

The investment firm’s commodity analysts are broadly neutral to bearish on most stocks in the sector. Across base metals, the U.S. tariff policy, China economic headwinds and rising developed market debt service burdens derail a meaningful global manufacturing recovering beyond 2025, Citi wrote.

Citi Research is neutral on bulk metals due to likely demand softness. But the investment firm rates Steel Dynamics (NASDAQ: STLD), of Fort Wayne, Indiana, as a buy. Why?

“For STLD, we expect a relatively greater benefit from higher hot-rolled coil (HRC) and coated steel prices, and argue it is unique among peers given its nearly complete aluminum rolling mill project,” Citi Research wrote. “STLD should see free cash flow inflect in 2025 as it completes its growth capex cycle.” Citi Research foresees a a near-term rally in HRC driven by: (1) seasonally strong Q1 demand, (2) the resurgence of non-residential construction, (3) a decline in imports and (4) higher scrap costs. Tariffs could also help, the firm added.

Chart courtesy of www.stockcharts.com

 Three Steel Stock to Consider Buying: NUE

Charlotte, North Carolina-based Nucor Corp. NYSE: NUE) gained a buy rating and a price objective of $160 per share from Citi Research. The company is a previous successful recommendation of Mark Skousen, PhD, and Jim Woods, who team up to co-lead the Fast Money Alert advisory service. Skousen also writes a monthly investment newsletter called Forecasts & Strategies, while Woods is launching a newsletter this week named Investing Edge.

The 7.0x multiple of NUE is above the target multiple used for integrated peers (6.5x for CLF/X) to recognize its highly variable cost structure, diversified product mix, strong volume growth potential (from multiple projects underway) and investment grade balance sheet with a disciplined capital return policy (minimum of 40% of net income), Citi wrote.

Risks to the price objective are: 1) lower steel price and higher scrap costs squeezing margins, 2) weaker than expected demand especially in construction markets, 3) project start-up delays and cost overruns, and 4) M&A’s which could be dilutive in the near-term.

Outperformance could come from 1) higher than expected steel prices, 2) lower than expected input costs, 3) lower import volumes, 4) more favorable trade policies, and 5) a stronger than expected economy, the analysts wrote.

Chart courtesy of www.stockcharts.com

Three Steel Stock to Consider Buying: CMC

London-based Commercial Metals Co. (NYSE: CMC) is rated a buy with a $69 per share price objective by Citi Research. That is based on a 7.0 times multiple that is higher than its historical trading average of 6.1 times to reflect the market rerating, Citi wrote.

“However, the 7.0 times multiple is below the target multiples used for mini-mill peers (7.5-8.0x for STLD/NUE) given its less diverse products / end-markets,” Citi Research reported. “This is partly offset by CMC’s leverage to infrastructure demand, which is set to see strong growth from a significant increase in federal spending.”

CMC’s management forecasts around 1.5mn ton per annum of incremental demand against a 9-10mn U.S. rebar market.

Upside risks to our price objective are: 1) better-than-expected construction / reshoring demand, 2) higher steel pricing, 3) better-than-expected pricing power in global long products that support pricing and limit imports, 4) additional trade relief, 5) cash deployment for organic or inorganic growth, Citi wrote.

Downside risks to our price objective are: 1) sluggish demand due to delay in federal funding and/or tightened credit availability for private projects, 2) lower steel pricing, 3) execution risk related to Tensar and new micro-mills, 4) any rollback of trade relief, particularly related to Section 232, 5) threat of lower priced imports and 6) potential medium term oversupply from various new entrants in the domestic rebar market, according to Citi.

Chart courtesy of www.stockcharts.com

Three Steel Stock to Consider Buying: Summary On the macro side, Citi expects geopolitical tension, foreign exchange (FX) volatility and resource nationalism. Tension already is arising as the United States seeks to block the proposed acquisition of U.S. Steel by Nippon Steel Corp. Citi wrote the resource nationalism theme likely will continue prominently in 2025.