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U.S. Steel Stocks Set Up Well for 2nd-Half of 2015, Credit Suisse Says (X) (RS) (WOR) (ZEUS)

May 29, 2015 8:15 AM EDT
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Credit Suisse analyst Nathan Littlewood offered some bullish commentary on the U.S. Steel Sector today. Littlewood believes that the 2nd-half of 2015 is increasingly looking like a win-win scenario for US steel equities.

"Our base case assumes success on legislative changes, a trade case filing, and an end market restock cycle in coming months―all positives for steel equities," Littlewood said. "The alternative scenario might be that import pressure persists and steel prices trend lower. This would only fuel the trade-case fire and result in increased speculation around a potential trade case. This doesn't seem like an entirely negative outcome for the equities either."

The analyst said focus on the The International Trade Commission (ITC), not The Department of Commerce (DoC). The International Trade Commission (ITC) is responsible for the assessment of injury, and is by far the more important catalyst to watch, he said.

The Customs Bill includes an amendment redefining the definition of injury used in antidumping trade cases, the analyst notes. "If passed, it would be a critical win for the domestic steel industry," he said.

The firm continues to like U.S. Steel (NYSE: X) for both its long term self-help story as well as shorter term leverage to the trade case story, although the entire steel sector is expected to benefit if 2H15 plays out as expect.

Service Center business such as Reliance Steel (NYSE: RS), Worthington Industries (NYSE: WOR), and Olympic Steel (NASDAQ: ZEUS) are favorably leveraged to a drop in import volumes as a result of likely market share gains, the analyst said. And finally, raw material suppliers such as Arch Coal (NYSE: ACI), Alpha Natural (NYSE: ANR), and Cliffs Natural Resources (NYSE: CLF) may also benefit if US domestic Blast Furnace production increases as a result of less import competition.



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