Free Trial

3 Steel Stocks Could Soar on New China Tariffs

→ Biden FINISHED On June 13th? (From Paradigm Press) (Ad)

Key Points

  • As China tariffs are proposed, the U.S. government is looking to onshore some steel and aluminum manufacturing stocks. 
  • Wall Street is well aware of a new manufacturing breakout in the economy. 
  • Three stocks stand out as top picks, with analysts and institutions behind them.
  • 5 stocks we like better than Industrial Select Sector SPDR Fund

A new business cycle is underway for the United States economy, and the manufacturing sector could be in play. This time, it isn't only Wall Street pushing the bets forward but also the current administration's attempt to onshore some global steel and aluminum manufacturing jobs.

So far, markets have been accepting this new manufacturing trend. The ISM manufacturing PMI index saw its first expansionary month in February 2024, a sign of relief after contracting for more than a year. With the revival of U.S. manufacturing, the steel industry could be in play for many investors’ portfolios.

While investors could randomly pick any steel and aluminum stock and likely earn a net positive return, the objective is to beat the market. For reasons that will soon become clear, names like Alcoa Co. NYSE: AA, ATI Inc. NYSE: ATI, and even Carpenter Technology Inc. NYSE: CRS could be top picks in these new industry trends today.

Wall Street Got On Board

Analysts at The Goldman Sachs Group Inc. NYSE: GS sent Main Street their opinions about the manufacturing sector for the U.S., expecting a breakout inside their 2024 macro outlook report.

So far, they have been right, as the ISM showed a 6.4% increase in export orders. Because the Federal Reserve (the Fed) is looking to cut interest rates this year, as soon as September 2024, according to the CME’s FedWatch tool, prospects of a weaker dollar could make American exports more attractive to foreign nations.


This connects the dots for rising export orders, and the money is going to be made in those industries that will begin undertaking manufacturing production to fulfill these new orders. This sudden pivot may be one of the reasons why industrial stocks have outperformed in the past quarter.

During this period, the Industrial Select Sector SPDR Fund NYSEARCA: XLI outperformed the broader S&P 500 by 4%. This price action comes while technology stocks dominated investor sentiment for the better part of 2023 and the start of 2024.

Evidence is found for these stocks potentially being in play, signaling bullish sentiment backed by fundamental industry developments.

Only the Best Make the Cut

This is why these stocks could be the top picks rather than any steel stock. Starting with the most aggressive story, Alcoa analysts think that the stock could grow its earnings per share (EPS) by as much as 472% in the next 12 months, significantly above the steel industry’s 10% average EPS growth.

Markets are okay with these projections, however bold they may seem. To gauge this sentiment, investors can use the forward price-to-earnings (P/E) ratio, the market's way of placing a value today on tomorrow’s potential earnings.

Alcoa Today

Alcoa Co. stock logo
AAAA 90-day performance
Alcoa
$41.64
+0.59 (+1.44%)
(As of 05/24/2024 ET)
52-Week Range
$23.07
$44.57
Dividend Yield
0.96%
Price Target
$35.04

Valued at 21.5x forward P/E, a premium of 105% above the industry’s average 10.5x valuation, Alcoa’s earnings are justified by markets as the top quality in the space.

ATI Today

ATI Inc. stock logo
ATIATI 90-day performance
ATI
$60.53
+1.28 (+2.16%)
(As of 05/24/2024 ET)
52-Week Range
$34.10
$62.44
P/E Ratio
24.31
Price Target
$61.00

Expected to grow its EPS by 30% this year, ATI has a way to make it to the list. Markets slapped an 18.3x valuation on these future earnings, or a 74% premium to the sector.

Knowing the tailwinds behind the company, analysts at Deutsche Bank boosted their price targets on the stock up to $70 a share, calling for a 37% upside from today’s prices.

Being the ones to sponsor the manufacturing insight, those at Goldman saw it fit to boost their positioning in the stock by 31.8% in the past quarter, bringing the bank’s total investment in ATI stock up to $59.4 million.

A 16% projected EPS growth for the year places Carpenter Technology at the last – but not least – place on the list. Still looking to grow above the industry and be valued at a 61% premium through its 16.9x forward P/E, this stock has merit.

Carpenter Technology Today

Carpenter Technology Co. stock logo
CRSCRS 90-day performance
Carpenter Technology
$109.59
+1.28 (+1.18%)
(As of 05/24/2024 ET)
52-Week Range
$44.40
$112.32
Dividend Yield
0.73%
P/E Ratio
41.67
Price Target
$109.67

Benchmark boosted their price targets to $100 a share, a valuation that represents a 28.5% upside from today’s stock price. Considering this price target was set in September 2023, investors could be surprised with a new rating, which could be detrimental.

However, that doesn’t seem to be a risk for institutional investors, as they own 92% of Carpenter stock. On this list is Goldman Sachs again, boosting its position by 82.3%, bringing the total exposure to $68.8 million.

From massive growth at the highest premium to the less exciting EPS jump, though backed by Goldman Sachs, investors have a potential portfolio to play the onshoring of steel and aluminum manufacturing.

Should you invest $1,000 in Industrial Select Sector SPDR Fund right now?

Before you consider Industrial Select Sector SPDR Fund, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Industrial Select Sector SPDR Fund wasn't on the list.

While Industrial Select Sector SPDR Fund currently has a "hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 Stocks That Could Be Bigger Than Tesla, Nvidia, and Google Cover

Growth stocks offer a lot of bang for your buck, and we've got the next upcoming superstars to strongly consider for your portfolio.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alcoa (AA)
2.827 of 5 stars
$41.64+1.4%0.96%-11.07Hold$35.04
ATI (ATI)
1.6272 of 5 stars
$60.53+2.2%N/A24.31Buy$61.00
Carpenter Technology (CRS)
3.5495 of 5 stars
$109.59+1.2%0.73%41.67Moderate Buy$109.67
The Goldman Sachs Group (GS)
4.8485 of 5 stars
$461.18+0.7%2.39%18.01Moderate Buy$440.57
Industrial Select Sector SPDR Fund (XLI)N/A$124.46+0.5%1.29%26.03N/AN/A
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

7 Dividend Stocks with Double-Digit Growth Rates

7 Dividend Stocks with Double-Digit Growth Rates

Discover top dividend stocks defying myths with both secure dividends & double-digit growth. Explore our list of 7 blue-chips setting 2024 standards.

Search Headlines: