TS: 3 Top

The steel industry presents promising growth opportunities with a focus on ‘green steel’ and increasing global demand. Therefore, here are three A-rated steel stocks, Tenaris S.A. (TS), Voestalpine AG (VLPNY), and Acerinox, S.A. (ANIOY), that investors could buy for potential gains in August. These companies also pay stable dividends.

The U.S. Commerce Secretary Gina Raimondo recently expressed a strong focus on establishing a “green steel” arrangement with the European Union and other partners, with the aim of disadvantaging carbon-intensive steel from China and other countries.

By creating trade barriers on high-carbon emissions steel, the U.S. government seeks to address the issue of Chinese excess steel manufacturing capacity, which has been a significant concern in the global steel market. Such measures aim to protect domestic steel producers, leveling the playing field and promoting fair competition.

The global steel market is projected to reach 2.3 billion metric tons by 2030, growing at a CAGR of 3%.

The government’s focus on green steel also aligns with the current global emphasis on environmental sustainability. U.S. steelmakers are already among the world’s lowest carbon emitters due to their reliance on electric-arc furnaces and steel production from scrap rather than iron ore smelting in coal-fired blast furnaces.

Furthermore, investment in carbon steel infrastructure is on the rise, driven by the demand for building materials like beams, angles, wire rods, and bars due to development projects in India, ASEAN, and worldwide. The market is also expected to expand as there will be significant spending on repair and rehabilitation.

According to a report by Allied Market Research, the global carbon steel market is projected to grow at a CAGR of 3.6%, reaching $1.30 trillion by 2032.

Let us take a look at the stocks mentioned above:

7 SEVERELY UNDERVALUED STOCKS

Tenaris S.A. (TS)

TS provides seamless and welded steel tubular products and related services to the energy industry. The company offers steel casings, tubing products, mechanical and structural pipes, cold-drawn pipes, sucker rods, coiled tubing, industrial equipment, heat exchangers, and power generation.

On July 3, 2023, TS’ subsidiaries Confab Industrial S.A., Ternium Investments, and Ternium Argentina completed the previously announced acquisition of 68.7 million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) (USNZY) from Nippon Steel Corporation, Mitsubishi and MetalOne for BRL 10 ($2.11) per common share.

TS’ trailing-12-month net income margin of 23.49% is 60.7% higher than the industry average of 14.62%. Its trailing-12-month asset turnover ratio of 0.80x is 21.6% higher than the 0.66x industry average.

The company pays an annual dividend of $0.68, which translates to a yield of 2.05% on the prevailing price level. Its four-year average yield is 2.69%.

During the fiscal 2023 first quarter that ended March 31, 2023, TS’ net sales increased 74.9% year-over-year to $4.14 billion. Its operating income improved 179.1% from the year-ago quarter to $1.35 billion, while its net income rose 124.4% from the prior-year quarter to $1.13 billion. Also, the company’s EPS grew 123.2% year-over-year to $0.96.

The consensus EPS estimate of $1.60 for the fiscal second quarter (ended June 30, 2023) represents a 48.6% improvement year-over-year. The consensus revenue estimate of $3.76 billion for the to-be-reported quarter indicates a 34.1% increase from the same quarter last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.

TS’ shares have soared 21.4% over the past year to close the last trading session at $33.25.

TS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

It also has an A grade for Momentum and a B for Growth and Quality. Among the 34 stocks in the A-rated Steel industry, it is ranked #4.

In addition to the POWR Ratings highlighted above, one can access TS’ additional ratings for Stability, Value, and Sentiment here.

Voestalpine AG (VLPNY)

Based in Linz, Austria, VLPNY processes, develops, manufactures, and sells steel products. Its segments include Steel; High-Performance Metals; Metal Engineering; Metal Forming; and Other. The company’s offerings comprise steel strips, heavy plates, and turbine casings for various industries such as automotive, construction, and energy.

VLPNY’s trailing-12-month asset turnover ratio of 1.07x is 45% higher than the 0.74x industry average. Its trailing-12-month levered FCF margin of 5.94% is 72% higher than the 3.46% industry average.

On April 19, 2023, VLPNY announced the successful placement of its convertible bonds of €250 million ($275.36 million). The successful placement of convertible bonds provides VLPNY with a significant financial boost and various strategic advantages.

VLPNY pays an annual dividend of $0.34, which translates to a dividend yield of 5.07%. Its four-year average dividend yield is 3.14%. The company has raised its dividend at a CAGR of 95.2% over the past three years.

In the fiscal year that ended March 31, 2023, VLPNY’s revenues amounted to €18.23 billion ($20.08 billion). The company’s EBITDA rose 11.1% from the previous year to €2.54 billion ($2.80 billion). Its profit after tax from continuing operations grew 1.2% year-over-year to €1.09 billion ($1.20 billion).

VLPNY’s revenue is expected to grow 6.4% year-over-year to $5.07 billion for the fiscal 2024 first quarter that ended June 30, 2023. Also, the company topped the consensus revenue estimates in each of the four trailing quarters, which is impressive.

Over the past year, the stock has gained 53.3% to close the last trading session at $6.65. It has soared 24.7% year-to-date.

VLPNY’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

VLPNY has an A grade for Value and a B for Stability, Quality, and Momentum. It ranks top in the same industry.

Click here to access VLPNY’s additional ratings (Growth and Sentiment).

Acerinox, S.A. (ANIOY)

Headquartered in Madrid, Spain, ANIOY manufactures, transforms, and markets stainless steel products. Its offerings include coil cold rollings, hot rolled coils, roughing materials, discs, billets, and plates.

ANIOY’s trailing-12-month asset turnover ratio of 1.23x is 64.8% higher than the 0.74x industry average. Its trailing-12-month gross profit margin of 35.16% is 23.8% higher than the 28.39% industry average.

While ANIOY has a four-year average dividend yield of 5.58%, the company pays an annual dividend of $0.33, which translates to a yield of 6.44% on the prevailing market price.

ANIOY’s revenue amounted to €1.78 billion ($1.96 billion) in the fiscal first quarter that ended March 2023. The company’s EBIT and EBITDA came in at €182 million ($200.46 million) and €226 million ($248.92 million). It reported an income after tax and minorities of €136 million ($149.79 million).

Analysts expect ANIOY to report revenue of $7.51 billion in the fiscal year 2023.

Shares of ANIOY have gained 17.3% over the past nine months to close the last trading session at $5.22.

ANIOY’s POWR Ratings reflects its sound fundamentals. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

ANIOY has an A grade for Value and a B for Stability, Momentum, Sentiment, and Quality. It is ranked #2 in the same industry.

Access ANIOY’s additional POWR Ratings for Growth here.

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TS shares were trading at $33.67 per share on Monday morning, up $0.42 (+1.26%). Year-to-date, TS has declined -1.75%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...