3 Iron/Steel Stocks Under $5 Rated ‘Buy’ According to the POWR Ratings

Metal prices have recovered sharply from their pandemic-led lows, supported by government stimulus, and rebounding demand. Both iron and steel prices are at historic highs currently. Furthermore, because President Biden plans to close an infrastructure deal by the end of this month, iron and steel companies should benefit from the potential spending it includes. Given this backdrop, we think it could be wise to buy low-priced iron/steel stocks of Usiminas (USNZY), Champion Iron (CIAFF), and Mechel PAO (MTL), which are rated ‘Strong Buy’ or ‘Buy’ in our POWR Rating system.

Last year, the COVID-19 pandemic negatively affected the metal market, causing acute declines in metal prices as demand swooned. The sector was also hampered by supply chain disruptions owing to the mine closures and spending cuts. However, the industry’s rebound has so far been  better than expected, with iron ore prices reaching historic highs, driven primarily by government stimulus.

Steel prices are currently at historic highs, with China cutting back production and rising demand from the resumption of construction activities. American Iron and Steel Institute CEO Kevin Dempsey expects 5 million tons of additional steel demand for every $100 billion new infrastructure investment. In addition, steel  prospects are promising, with the global steel market expected to grow at a 4.1% CAGR to  2.2 billion metric tons by 2026.

Therefore, we think steel stocks, Usinas Siderurgicas de Minas Gerais S.A. (Usiminas) (USNZY), Champion Iron Limited (CIAFF), and Mechel PAO (MTL), which are currently trading below $5, should be solid buys now, given their fundamental strength. These stocks are rated ‘Buy’ in our proprietary POWR Rating system.

Usinas Siderurgicas de Minas Gerais S.A. (Usiminas) (USNZY)

USNZY is a Belo Horizonte, Brazil-based manufacturer of flat steel products in the country and globally. The company operates through Mining and Logistics; Steel Metallurgy; Steel Transformation, and Capital Assets segments. It extracts and processes iron ore and operates a trading company.

USNZY’s net revenues increased 295.8% year-over-year in its second fiscal quarter, to R$9.60 billion ($1.70 billion). Its gross profit rose 1,205.6% from the same period last year to R$3.64 billion ($647.13 million). And its net income came in at R$4.54 billion ($807.19 million), up substantially from its negative year-ago value.

A $1.26 consensus EPS estimate for the current year (fiscal 2021) indicates a 1,160% year-over-year increase. Likewise, the $6.22 billion consensus revenue estimate for the current reflects a 99.3% improvement from the prior year. Moreover, USNZY has an impressive surprise earnings history; it has topped consensus EPS estimates in three out of the trailing four quarters. The stock has gained 22% in price over the past year to close yesterday’s trading session at $2.50.

USNZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

USNZY has a Growth and Momentum grade of A, and a Value and Quality grade of B. In the 34-stock, A-rated Steel industry, it is ranked #6. 

Click here to see the additional POWR Ratings for USNZY (Stability and Sentiment).

Champion Iron Limited (CIAFF)

CIAFF explores, produces, and develops iron ore deposits in Canada. The company operates flagship projects, like the Bloom Lake Mine in Labrador and the Consolidated Fire Lake North iron ore project, located about 40km south of Bloom Lake. CIAFF is headquartered in Montreal, Canada.

On August 16, CIAFF declared that it had signed a letter of intent with Caterpillar, Inc. (CAT) for the implementation of CAT’s Advanced Drilling Technologies at its Bloom Lake Mine. The collaboration is expected to increase Bloom Lake Mine’s operational productivity and improve mining practices, while reducing waste and energy use.

CIAFF’s revenues increased 123% year-over-year, to CAD545.41 million ($441.93 million), in its fiscal first quarter ended June 30. Its operating income improved 236.9% from the prior-year quarter to CAD400.04 million ($324.15 million). Its net income and EPS were up 196.9% and 186.7%, respectively, year-over-year to CAD224.34 million ($181.78 million) and CAD0.43.

Analysts expect CIAFF’s EPS to increase 10.8% year-over-year to $1.17 billion in its current fiscal year (ending March 2022). CIAFF’s stock has gained 59% in price over the past year to close yesterday’s trading session at $3.49.

It’s no surprise that CIAFF has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Value and Quality. It is ranked #7 of the 43 stocks in the Miners – Diversified industry.

To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for CIAFF, click here.

Mechel PAO (MTL)

MTL and its subsidiaries operate a mining, steel, and power businesses internationally, selling coke, steam coal, semi-finished steel, pig iron and metal products, and electricity supply. It functions through the segments of Mining; Steel, and Power. The company is based in Moscow, Russia.

On September 22, MTL reported signing a coal supply contract with Far-Eastern Energy Company, which is part of RusHydro PJSC (RSHYY). The contract enables MTL to supply thermal coal for the Neryungrinskaya Power Station. Regarding the contract, Mechel PAO's Chief Executive Officer Oleg Korzhov said, “We have been working together with Far Eastern energy providers for decades, and this new contract only strengthens this longstanding partnership. Approximately 10-12% of thermal coal sold by Mechel's mining division goes to Far Eastern Energy Company. The company confirmed their interest in our coal, and we in our turn are ready to provide them with coal of requisite quality."

The company also won a tender to supply tram rails to Moscow Metro. The contract is for supplies of more than 5,000 tonnes of rails, shipments of which were expected to begin in September. This should bolster the company’s revenues significantly in the coming months.

For the six months ended June 30, MTL’s revenue from contracts with customers climbed 40.3% year-over-year, to RUB184.91 billion ($2.60 billion). Its operating profit increased 664.6% from the same period last year to RUB43.35 billion ($609.88 million). Its EBITDA margin rose 11 percentage points from the same period last year to 28%. And its profit came in at RUB31.81 billion ($447.42 million), registering a 211.9% improvement year-over-year.

The Street’s $4.64 billion revenue estimate for the current year (fiscal 2021) reflects a 28.9% rise from the prior year. The stock has gained 208.3% in price over the past year and 116.6% year-to-date to close yesterday’s trading session at $4.44.

MTL’s POWR Ratings reflect this promising outlook. The stock has an overall A rating which equates to Strong Buy in our proprietary rating system. MTL has an A grade for Growth, Momentum, and Quality, and a B grade for Value. It is ranked #4 in the Steel industry.

In addition to the POWR Rating grades we’ve stated above, one can see MTL ratings for Stability and Sentiment here.

Note that MTL is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

USNZY shares were trading at $2.52 per share on Friday afternoon, up $0.02 (+0.80%). Year-to-date, USNZY has gained 2.47%, versus a 22.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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