The Market Vectors Steel ETF (SLX) is higher by 2% on volume that is nearly double the daily average after Goldman Sachs upgraded its view on the steel sector to neutral from cautious.
“…we see the sector heading to a sustainable recovery over the coming years and risks associated with oversupply appear to be largely priced in. Although volatility associated with this deeply cyclical sector will remain a norm, we believe that investors should start to look beyond near-term headwinds,” according to a Goldman not posted by Barron’s.
The bank upgraded U.S. Steel (NYSE: X) and AK Steel (AKS) to buy from sell while boosting Steel Dynamics (STLD) from buy to neutral. Goldman lowered its rating on Reliance Steel & Aluminum (RS), calling the stock fully valued, Barron’s reported.
Steel Dynamics, U.S. Steel and AK Steel combine for less than 9% of SLX’s weight. Reliance Steel is 4.3% of the ETF’s weight.
While the Goldman steel sector upgrade has SLX trading at its highest levels since February, the upgrades come on the heels of a 19% gain for SLX over the past 90 days. [Steel ETF's Stellar Stealth Run]
Gold is not the first major bank to recently sound a bullish tone on steel stocks. Last month, UBS sound a bullish tone on Nucor (NUE) and Steel Dynamics, raising its price target on the former to $52 from $50. At a weight of nearly 5.1%, Nucor is SLX’s seventh-largest holding.
Regardless of what bank is making a bullish call on steel stocks, the calls themselves could prove to be prescient. Steel stocks are deep cyclical, materials plays. Not only have materials stocks and ETFs been rallying recently, but history shows this is the ideal time of the year in which to own materials names. [Materials ETFs Really Are November Buys]
Market Vectors Steel ETF
- Basic Materials Industry
- Goldman Sachs
- Steel Dynamics