5 Steel Stocks for 2012

NEW YORK ( TheStreet) -- Global crude steel production for November 2011 increased 1.1% to 116 million metric tons over November 2010, the World Steel Association reports. Among major steel producing countries, South Korea recorded 12.4% growth in the same period.

Fitch has assigned a stable outlook to the steel sector as demand from automakers, energy companies and heavy equipment manufacturers indicates improvement. Also, the rating agency estimates the U.S. capacity utilization to rise in 2012.

Based on average estimates of analysts polled by Bloomberg, these five stocks have potential upsides ranging from 5% to 33%, with an average of 64% of analysts issuing buy ratings.

The stocks are sorted in ascending order of upside potential.

5. Nucor ( NUE) and its affiliates engage in the manufacture of steel and steel products. The company also produces direct reduced iron for use in its steel mills. It operates in three segments: steel mills, steel products and raw materials.

For the third quarter of 2011, Nucor reported 26.8% increase in consolidated net sales to $5.25 billion compared to $4.14 billion in the third quarter of 2010. Net earnings were $181.5 million, or 57 cents per diluted share.

Nucor expects fourth-quarter results to be in the range of 22 cents to 27 cents per diluted share.

Last month, Nucor increased its regular quarterly cash dividend to 36.5 cents per share from 36.2 cents per share.

Of the 21 analysts covering the stock, 62% recommend a buy and 24% suggest a hold. Analysts' average 12-month price target for the stock is $44.25, about 5% higher than the current price, according to Bloomberg.

4. Steel Dynamics ( STLD) is a steel producer and metals recycler. It also engages in the fabrication and sale of steel joists and decking products.

For the third quarter 2011, STLD recorded net income of $43 million, up 126% compared to the 2010 third quarter. Steel shipments were 1.5 million tons, up 12%. Operating income from steel operations was $139 million, or $96 per ton, shipped in the third quarter of 2011, an increase of $51 million.

The third quarter's average ferrous scrap cost per ton melted increased $79 compared to the 2010 third quarter and up $5 from the second quarter of 2011.

STLD expects fourth-quarter earnings of 8 cents to 12 cents per diluted share and announced a cash dividend of 10 cents per share payable Jan. 13 to shareholders of record Dec. 31.

Of the 17 analysts covering the stock, 59% recommend buying and the rest suggest a hold. The stock's average 12-month price target is $16.05, about 7% higher than the current price, a Bloomberg consensus shows.

3. Carpenter Technology ( CRS) manufactures specialty metals. It provides material to the aerospace, industrial, energy, medical, consumer products and automotive industries.

For the first quarter of fiscal 2012, CRS reported net sales of $414.1 million, up 18% from the same period in 2011. The company registered gross profit of $81.1 million, up 62.9%. Net income increased by 213%.

For fiscal 2012, CRS targets 50% increase in operating income, excluding non-cash pension expense, vs. fiscal 2011.

In December 2011, the company announced that it has agreed to acquire the assets of ARwin Machining Plus for approximately $1.4 million.

Of the 10 analysts covering the stock, six recommend a buy and three rate a hold. Analysts' average 12-month price target for the stock is $65.40, about 16.8% higher than the current price, according to Bloomberg.

2. Allegheny Technologies ( ATI) is a diversified specialty metals producer.

For the 2011 third quarter, ATI reported sales of $1.35 billion, up 28% from the third quarter previous year. During the quarter, segment operating profit increased 157% and net income stood at $62.3 million, or 56 cents per share.

For fiscal 2011, ATI expects revenue of $5.2 billion.

In December 2011, ATI signed a long-term sourcing agreement with Goodrich Corporation ( GR) for the supply of aerospace forgings used in landing gear components.

Of the 14 analysts covering the stock, 71% recommend buying and 21% suggest a hold. The stock's average 12-month price target is $63.20, about 26.4% higher than the current price, a Bloomberg consensus shows.

1. Metals USA Holdings ( MUSA) provides processed carbon steel, stainless steel, aluminum, red metals and manufactured metal components. The company operates through three main groups: plates and shapes, flat-rolled and non-ferrous, and building products group.

For the 2011 third quarter, MUSA recorded net sales of $492.3 million, up 43% compared to the third quarter of 2010, while earnings per diluted share were 45 cents compared to 16 cents for the third quarter of 2010.

Net sales for the first nine months of 2011 stood at $1.43 billion, up 48% from net sales of $968.2 million for the same period prior year.

Of the 10 analysts covering the stock, seven recommend a buy and the rest suggest a hold. The stock' average 12-month price target is $17.13, about 33.9% higher than the current price, a Bloomberg consensus shows.

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