Top Steel Stock Plays

Despite recent volatility in the broader markets, the steel sector has exhibited fantastic price action, supported by solid earnings and growth. With daytraders and investors alike trying to find the newest momentum plays, steel companies like AK Steel (AKS Quote) and United States Steel (X Quote) are making fresh 52-week highs almost daily.

Obviously, there is a fundamental reason behind the steel rally. For starters, steel plays a critical role in the infrastructural development and overall economy of any developing nation. In fact, between 2000 and 2005, world steel demand increased by 6% a year. And while the most recent consumption figures have yet to be published, it is widely speculated that recent consumption has grown at an even greater rate, along the lines of 10%-15%.

With this in mind, Stockpickr has compiled a list of the Top Steel Stocks.

One of the stocks making the list is Olympic Steel (ZEUS Quote), which is based out of Bedford Heights, Ohio. Olympic specializes in processing and coating stainless flat-rolled sheet steel to various widths and lengths. The company trades just under 2 times book value and has a forward price-to-earnings ratio of 13.7 and a large short position of 11.5%.

Another steel stock in the portfolio is Schnitzer Steel (SCHN Quote), which just reported fantastic earnings that showed second-quarter profits jumped more than 26%. Schnitzer specializes in recycling and salvaging steel from various vehicles in the U.S. and Canada. Since steel is the most recycled object in the world, it is no wonder that Schnitzer reported earnings of $1.25 a share vs. analyst estimates of $1.01 a share.

Schnitzer Steel's CEO John Carter said "prices in our Metals Recycling Business not only more than offset freight price increase which occur in the first quarter of this year, but also outpaced increases in the cost of acquiring raw materials." Basically, despite rising shipping and commodity costs, Schnitzer was able to beat earnings estimates by 24 cents a share.

Also making the list is Reliance Steel (RS Quote), one of the larger producers in the U.S., as well as Freeport-McMoRan (FCX Quote), which is a large producer and miner of molybdenum, a commodity that is used to strengthen steel. Since 80% of all molybdenum is used to strengthen steel, it is widely expected that there will be molybdenum supply issues starting in 2010.

For all of the steel stocks in this portfolio, check out the Top Steel Stocks at Stockpickr.com.