With U.S. GDP, construction spending, and industrial activity all on the upswing, one might surmise that 2015 is shaping up to be a banner year for the steel sector. But with weak crude prices undercutting demand from the energy sector and a wave of imports washing ashore, that's unlikely to be the case. We expect 2015 to mark a cyclical trough as spot prices fall and capacity utilization remains unfavorable. Thereafter, we expect a proliferation of strong, broad-based end-market demand to drive improved utilization and margin expansion as headwinds abate. On the basis of U.S. steelmakers' current valuations, the market assumes no such recovery, and we assert that U.S. steel stocks have been unjustly punished in recent months. We see attractive valuations across the space for long-term-oriented investors. Low-cost, lightly leveraged Nucor (NUE) offers the best risk-adjusted return potential, as the company should have no problem navigating lower free cash flow in the near term as its direct-reduced iron project takes hold.
Source: The morning Star
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