Steel stocks shot higher Monday in anticipation of a Senate vote on the $1 trillion bipartisan infrastructure bill, which is expected to successfully pass through the chamber Tuesday morning after nearly 70 senators voted to advance the legislation over the weekend.
Key Takeaways
- Steel stocks sit well positioned to benefit from a $1 trillion bipartisan infrastructure bill.
- U.S. Steel (X) shares broke out from a pennant pattern, indicating further upside continuation.
- Nucor (NUE) shares broke above a pennant in a move that could trigger additional buying as the stock approaches its all-time high.
The bill includes $550 billion in new spending on roads, bridges, and internet access, which would be a boon for steel stocks that sit well positioned to supply materials in the massive infrastructure rollout. Below, we take a closer look at two of the industry’s leading names and analyze the charts to identify important trading levels.
United States Steel Corporation (X)
United States Steel Corporation (X) produces and sells flat-rolled and tubular steel products, making it a perfect fit to supply materials for rebuilding and upgrading the nation’s roads, bridges, railways, and key utility infrastructure. In addition, the government spending bonanza would drive higher earnings and revenues, helping the 120-yeat-old steelmaker raise its per-share dividend payouts.
In recent months, the stock has accrued a string of upgrades from prominent investment banks. Credit Suisse analysts Curt Woodworth told investors in May that he sees 40% upside in U.S. Steel stock over the next year as the steel industry enters a “supercycle.” Likewise, Morgan Stanley’s Carlos Able believes rising steel prices should see the company produce stronger cash flow in upcoming quarters. As of Aug. 10, 2021, United States Steel stock has a market capitalization of $7.3 billion, issues a small 0.15% dividend yield, and is trading up over 60% on the year. In the past month alone, the shares have added 10.15%.
Since finding support at the closely watched $21 level, U.S. Steel stock has cautiously trended higher. More recently, the price broke out from a pennant pattern Monday, indicating further upside continuation. Those who buy here should look for a potential test of the multi-year high at $44.63, set in February 2018. In terms of risk management, consider placing a stop-loss order beneath the pennant pattern’s low at $24.54 and moving it to the breakeven point if the stock climbs above intermediate resistance at $29.
A pennant is a type of continuation pattern formed when there is a large movement in a security, known as the flagpole, followed by a consolidation period with converging trend lines.
Nucor Corporation (NUE)
Charlotte, North Carolina-based Nucor Corporation (NUE) manufactures steel and steel-related products through three divisions: steel mills, steel products, and raw materials. The diversified steelmaker also ranks among North America’s largest metal recyclers, putting the company in the box seat to win government contracts, given the Biden Administration’s environmental sustainability focus. To that end, Nucor continues to make inroads reducing its carbon footprint, inking agreements earlier this year to ramp up its renewable energy sources. Trading at $107.78, with a market value of $31.65 billion and offering a 1.55% dividend yield, the stock has surged 102.63% year to date, outperforming the steel industry average over the same period by nearly 50% as of Aug. 10, 2021.
Like U.S. Steel shares, the price of Nucor broke above a pennant Monday in a move that could trigger additional buying as the stock approaches its all-time high. Those who decide to play the momentum should use a trailing stop to bank profits. Action this tactic by placing an initial stop under the pennant pattern and raising it under each higher swing low as the price moves higher.
A trailing stop is a modification of a typical stop order that can be set at a defined percentage or dollar amount away from a security’s current market price. For a long position, an investor places a trailing stop loss below the current market price.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.