Tharani also backed a "Sell" rating for U.S. Steel Corp., saying that its fortunes are the most closely tied to fluctuations in steel prices. U.S. Steel shares tumbled $1.09, or 5.7 percent, to $18.04.

But Tharani raised his rating for Commercial Metals Co. to "Neutral" from "Sell" and increased his price target for the company by $1.50 to $14, saying that its shares reflect the company's risks after dropping 14 percent over the last 12 months. Still, Tharani cut earnings estimates for the company for this year.

Commercial Metals shares fell 10 cents to $11.85 in afternoon trading.

Tharani said his top picks in the sector include metal service center companies such as Reliance Steel & Aluminum Co. and Allegheny Technologies Inc., a more specialized metals processor that serves industries including energy, aerospace and autos. He rates both "Buy."

In afternoon trading, shares of Reliance Steel fell $1.19, or 2.5 percent, to $47.48, while Allegheny dropped $1.24, or 4.1 percent, to $29.06.

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