The Biden administration announced in May 2024 that it would not only leave the existing tariffs on Chinese steel and aluminum in place but is proposing to triple them. The implications for the United States steel industry is a simple matter of supply and demand. Which is why it’s time for investors to look for steel stocks to buy.
The current Section 301 of the Trade Act of 1974 imposes a 7.5% tariff on steel and aluminum imports from China. The Biden administration is proposing increasing those to 25%. This isn’t being done by executive order so, for now, this may be just a year of election year politics.
Nevertheless, this could be a time for investors to consider looking at the steel sector. Furthermore, the good news is that after a strong year in 2023, there are several steel stocks to buy that are trading at a significant discount. Here are three names to consider.
Cleveland-Cliffs (CLF)
Another way the Biden administration is looking to protect the U.S. steel industry is by expressing his intention to block Nippon Steel’s bid to buy U.S. Steel (NYSE:X). Cleveland-Cliffs (NYSE:CLF) made a bid for U.S. Steel that was rebuffed over concerns that too much of the steel used in the automotive industry would be under Cleveland-Cliffs control.
That’s one reason that CLF stock is down by 21% in 2024. Nevertheless, the company appears to offer good value after this sell-off. It trades at around 16x forward earnings. Analysts are also projecting a 125% increase in earnings per share (EPS) in the next 12 months.
You should also consider that commodity prices, such as steel, tend to increase during periods of high inflation. Plus, the company is still trying to grow through acquisition. It has signed a non-disclosure agreement (NDA) to buy the U.S. plants of NLMK, Russia’s largest steel producer.
Steel Dynamics (STLD)
Steel Dynamics (NYSE:STLD) is the third largest steel producer in the U.S. and may present investors with a better value than the aforementioned Cleveland-Cliffs. The stock trades at just 10.2x forward earnings. The company is also coming off a year in which it delivered $18.8 billion in revenue, its second-highest number ever. Furthermore, it’s shown a willingness to reward shareholders through a growing dividend.
One of the key stories for Steel Dynamics lies in its commitment to sustainability. Part of the company’s core businesses includes robust metals recycling. This is a way for the company to keep quality metals in circulation while boosting its profit margin.
That said, there is some concern that earnings will drop in the next 12 months. However, analysts still have a consensus price target of $137.78 on STLD stock, which marks a gain of over 8%. Those price targets do not factor in the possible impact from U.S. tariffs.
Olympic Steel (ZEUS)
If you’re looking at small-cap steel stocks to buy, Olympic Steel (NASDAQ;ZEUS) is a potential option. The company’s Return on Equity of around 6.3% is lower than the sector average of 10%, but not in an alarming way. And it seems to be backed up with net income growth.
Nevertheless, revenue is down sharply from 2022, but the stock is trading at a significantly higher level (probably due to inflation). ZEUS stock isn’t heavily covered by analysts, but the single analyst that has issued a Strong Buy rating with a price target puts a $73 price on the stock which is a 45% gain over the next 12 months.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
