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Consider These 3 Steel Companies

- By Alberto Abaterusso

Last week, The Washington Post reported President Donald Trump told White House advisers, military engineers and Homeland Security executives that the border barrier with Mexico will not be a concrete wall as he had originally promised, but a 1,954 mile-long fence of steel poles.


As a result, the demand for steel products will significalty increase, boosting the sales of manufacturers. Investors who may be considering increasing their holdings in steel companies should look for those that beat the industry in terms of a higher earnings before interest, taxes, depreciation and amortization margin. The Ebitda margin is an indicator of profitability for companies that operate in a capital-intensive industry like steel.

What's more, GuruFocus gave them high ratings for financial strength as well as profitability and growth, reinforcing expectations for a successful investment.

The following are the results of my screening.

Nucor Corp. (NUE) closed at $53.29 per share on Friday for a market capitalization of $16.2 billion. The stock declined 18% over the past 52 weeks through May 17 and is now trading below the 200-, 100- and 50-day simple moving average lines. The closing share price on Friday was 6.8% above the 52-week low of $49.79 and 29.4% below the 52-week high of $68.84.

The stock has a price-book ratio of 1.62 versus the industry median of 0.99 and an enterprise value-to-Ebitda ratio of 4.52 versus the industry median of 8.71. The stock appears to be cheap.

Nucor has an Ebitda margin of 16.81% versus the industry median of 8.84%.

The company has a financial strength rating of 7 out of 10 and a profitability and growth rating of 8 out of 10.

Wall Street issued an overweight recommendation rating, suggesting Nucor will outperform either the industry or the overall market with an average target price of $67.77, which is 27.2% higher than Friday's closing price.

Shares of Steel Dynamics Inc. (STLD) closed at $32.02 on Friday for a market capitalization of $6.7 billion. Over the past year through May 17, the stock has tumbled 41% to below the 200-, 100- and 50-day simple moving average lines. The closing share price on Friday was 10.8% above the 52-week low of $28.91 and 61.4% below the 52-week high of $51.69.

The stock has a price-book ratio of 1.68 versus the industry median of 0.99 and an EV-to-Ebitda ratio of 3.92 versus the industry median of 8.71. The stock appears to be cheap.

Steel Dynamics has an Ebitda margin of 16.84% versus the industry median of 8.84%.

The company has a financial strength rating of 7 out of 10 and a profitability and growth rating of 8 out of 10.

Wall Street issued an overweight recommendation rating, suggesting Steel Dynamics will outperform either the industry or the overall market with an average target share price of $40.77, which represents 27.3% upside from closing price on Friday.

Ternium S.A. (TX) closed at $25.99 per share on Friday for a market capitalization of $5.1 billion. The stock fell 35% over the past year through May 17 and is now trading below the 200-, 100- and 50-day simple moving average lines. The closing price on Friday was 9.8% above the 52-week low of $23.68 and 54.6% below the 52-week high of $40.19.

The company has a price-book ratio of 0.77 versus the industry median of 0.99 and an EV-to-Ebitda ratio of 3.01 versus the industry median of 8.71. The stock appears to be cheap.

Ternium's Ebitda margin of 22.92% tops the industry median of 8.84% by 1,408 basis points.

The company has a financial strength rating of 6 out of 10 and a profitability and growth rating of 8 out of 10.

Wall Street issued an overweight recommendation rating with an average target price of $34.11 per share of Ternium, reflecting 31.2% upside from the closing price on Friday.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.