NEW YORK (TheStreet) -- With the price of steel very low, steel products companies are benefiting.
The worldwide oversupply of steel is generating losses for steel producer ArceloMittal SA (MT), and cutbacks for United States Steel Corporation (X). As a result of the glut in steel, steel prices have plunged to 2008 recession levels.
Steel products companies use steel as a major input, so they benefit from low steel prices. Steel products are used in construction and manufacturing, which are on an upswing as a result of the growing economy. As a result, steel product companies stand to reap substantial benefits.
So, what are the best steel products companies investors should be buying? Here are the top four, according to TheStreet Ratings,TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which steel companies made the list. And when you're done, be sure to read about which volatile aerospace and defense stocks to buy now. Year-to-date returns are based on June 26, 2015, closing prices. The highest-rated stock appears last.CMC data by YCharts
4. Commercial Metals Company (CMC)
Rating: Buy, B
Market Cap: $2 billion
Year-to-date return: 6.1%
Commercial Metals Company manufactures, recycles, and markets steel and metal products, and related materials and services in the United States and internationally.
"We rate COMMERCIAL METALS (CMC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- COMMERCIAL METALS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, COMMERCIAL METALS increased its bottom line by earning $0.89 versus $0.64 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $0.89).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 388.6% when compared to the same quarter one year prior, rising from $11.14 million to $54.45 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Metals & Mining industry and the overall market, COMMERCIAL METALS's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 17.3%. Since the same quarter one year prior, revenues fell by 12.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for COMMERCIAL METALS is rather low; currently it is at 18.30%. Regardless of CMC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.91% trails the industry average.
- You can view the full analysis from the report here: CMC Ratings Report