Goldman recommends these three steel stocks on Trump’s potential favorable trade policies
President-elect Donald Trump’s trade policies could spell good news for the U.S. steel industry, according to Goldman Sachs. Heading into next year, analyst Mike Harris initiated coverage on steel producers Nucor , Commercial Metals Company and Cleveland-Cliffs with buy ratings. His price targets on the three imply 20%-plus gains for the group over the next 12 months. “In our view, the prevailing sentiment towards the U.S. steel industry seems pessimistic given concerns on global over supply and weak but improving pricing,” he said in a Monday note to clients. “We are more positive given our belief that both cyclical (e.g., steady demand and lower interest rates) and structural (e.g., fiscal stimulus and favorable trade policy) factors could drive earnings growth for the domestic steel industry despite a weaker global backdrop.” This comes as the former president’s second term could introduce a slew of new trade agreements and tariffs. Just last week, Trump vowed to implement an additional 10% tariff on all Chinese goods coming into the U.S. as well as a 25% tariff on all goods from Canada and Mexico. Not only that, he also threatened a 100% tariff on BRICS nations – which includes China, Russia, Brazil and India, among others. Cheaper steel from China and other countries has weighed on domestic steel makers. While China has a “dominant” position as a steel consumer and producer, Harris believes steel imports from China to the U.S. will remain low given the impact of tariffs, supporting U.S. industry growth. He also expects that the industry’s supply/demand dynamics will stay firm compared to the historical average. With that in mind, the analyst forecasts 4% annual volume growth and 2% annual pricing growth for both Nucor and Commercial Metals ahead and sees a compound annual growth rate of 15% and 9%, respectively, in 2025 and 2026. For Cleveland-Cliffs, he anticipates about 3% annual volume growth and 1% annual pricing growth, seeing a 47% compound annual growth rate over the next two years. “We see CLF as another way to leverage any incremental US construction and infrastructure spend, which should be supplemented by successful execution of cost reduction and value-enhancing projects,” he also said. While shares of Nucor were flat in the premarket following the move, Commercial Metals and Cleveland-Cliffs were around 1% higher. This year, Commercial Metals has been solidly in the green, with shares rising more than 23% year to date. Meanwhile, Nucor and Cleveland-Cliffs shares have struggled, with Nucor’s falling more than 11% and Cleveland-Cliff’s plummeting around 39%.
