Metals Stocks Come Into Favor Ahead Of Q3 Earnings
The metals stocks are getting attention from the analysts that is helping to drive their shares higher. With systemic shortages of products and materials throughout the economic system, basic materials like aluminum and steel are in high demand. Because the Q3 earnings season is fast approaching, investors would be wise to gain some exposure to the sector. These are the stocks getting the most attention.
Alcoa Gets Upgraded By Argus
Aluminum producer Alcoa (NYSE:AA) got an upgrade to buy from hold at Argus. With aluminum prices moving up to the highest levels since 2008 and demand for aluminum reaching similar highs, it's not surprising to see. The analysts have been getting more and more bullish on the stock over the past few months pushing the consensus rating up from neutral to a firm buy and the consensus price target up 35% over the past three months. Even so, the data from Pricetargets.com shows the consensus target is trailing the current price action but we see this figure moving sharply higher over the next couple of weeks. Argus price target of $58 is the new high and assumes 15% upside from current price action and will likely not be the last upgrade/revision this earnings cycle.
Shares of Alcoa are trading at the highest level since 2018 and look set to move up and retest those 2018 highs very soon. The 2018 highs are just above $60 and present a significant pivot point for price action. If Alcoa results can push price action above $60 we see this market continuing up to the $80 to $90 range.
Deutschebank Upgrades Five Metals Stocks
Deutschebank came out with a major upgrade of five metal stocks that are well-positioned to benefit from current market conditions. The company upgraded Reliance Steel & Aluminum (NYSE: RS) and Commercial Metals (NYSE: CMC) to Hold while upgrading ArcelorMittal (AMS: MT), United States Steel (NYSE: X), and Steel Dynamics (NASDAQ: STLD) to a Buy. ArcelorMittal is rated a Buy by the analyst community with an expected 10% of upside in share prices. ArcelorMittal is expected to report earnings in late October.
U.S. Steel was also called out by Morgan Stanley as a mid-cycle play that should see a tremendous boost in free cash flow from high steel prices. In their view, this should help accelerate the company's deleveraging which, in our view, should allow the company leeway to pursue reorganization, growth avenues, and/or return capital to shareholders. Shares of U.S. Steel are moving sideways in the wake of the upgrades but are in an uptrend and well supported by the short-term moving average. The consensus price target for U.S. Steel is just above $32 or about a 32% upside while the high price target, set by Deutschebank we might add, is $50 and a near 100% upside.
Steel Dynamics Is Our Pick In This Group
Shares of Steel Dynamics are being supported by more than the analyst’s love. The company just issued third-quarter guidance that is well above the consensus and reinforces Deutschebank’s confidence in the sector. The company says high steel prices should drive earnings to $4.88 at the low end of the range compared to the consensus of $4.48. Based on the strength of activity within the industrial and manufacturing sectors, we see upside risk in the guidance.
The analysts are bullish on Steel Dynamics and are expecting about a 12% upside in prices. Deutschebank just set the high-price target of $98 and we think it is easily reachable. Not only is Steel Dynamics anticipating a strong quarter and year but the stock trades at a ridiculously low 4X earnings, yields about 1.7%, and has a safely growing distribution.
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