By Goldman Sachs analyst Mike Harris expects the US steel industry to flourish under Donald Trump as the President of the United States.
Lower interest rates and steady demand will benefit the domestic steel industry next year, he told clients in a research note today.
Structural factors like fiscal stimulus and favourable trade policy will drive earnings growth as well, the analyst added.
Three names in particular that Harris recommends owning within the steel space include Nucor, Cleveland-Cliffs, and Commercial Metals Company.
Nucor Corp (NYSE: NUE)
Mike Harris sees upside in Nucor stock to $190 that translates to a 22% upside from current levels.
Cheaper steel from China has hurt the domestic industry in recent years – but that will change next year as Donald Trump delivers on his promise of raising tariffs on foreign goods, he argued in his report today.
Goldman Sachs expects Nucor to grow at a compound annualised rate of 15%. The investment bank also expects the Charlotte headquartered firm to see both volume and pricing growth in 2025.
In October, the largest US steel producer reported a narrower-than-expected 15% decline in its revenue to $7.44 billion for its fiscal Q3.
Nucor shares currently pay a dividend yield of 1.37% that makes up for another good reason to own them.
Commercial Metals Company (NYSE: CMC)
Goldman Sachs currently sees about a 20% upside to $75 in shares of Commercial Metals.
Much like NUE, this Texas based company also stands to benefit from Trump tariffs. Robust supply/demand dynamics will help lift its stock price further in the coming year as well, according to the investment firm.
Mike Harris forecasts a 2.0% annual pricing growth and a 4.0% annual volume growth for CMC.
He’s convinced that Commercial Metals will grow at a compound annualised rate of 9.0% moving forward.
The analyst is bullish on Commercial Metals even though it came in short of Street estimates for earnings as sales declined on a year-over-year basis in its latest reported quarter.
A 1.13% dividend yield coupled with CMC stock makes it even more attractive.
Cleveland-Cliffs Inc (NYSE: CLF)
Mike Harris has a $16 price target on Cleveland-Cliffs that translates to about a 23% upside from here.
It’s the only one on his list, however, that doesn’t currently pay a dividend.
But on the plus side, the Goldman Sachs analyst expects CLF to grow at compound annualised rate of 47% over the next two years – significantly faster than both Nucor and Commercial Metals.
CLF is another way to leverage any incremental US construction and infrastructure spend, which should be supplemented by successful execution of cost reduction and value-enhancing projects.
Cleveland-Cliffs stock is attractive particularly because the valuation has come down in recent months.
Versus their year-to-date high, shares of the American steel manufacturer are down some 45% at writing.
Harris is positive on CLF despite both top- and bottom-line weakness in its recently concluded quarter.
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