Wednesday, January 12, 2011

Steel Dynamics (Nasdaq:STLD), Schnitzer Steel (Nasdaq:SCHN), US Steel (NYSE:X) Top Steel Picks of UBS (NYSE:UBS)

With guidance in the mid-quarter from some steel companies downwardly revised, it appears earnings for the fourth quarter will be under pressure. The top picks in the weak sector by UBS (NYSE:UBS) are Steel Dynamics (Nasdaq:STLD), Schnitzer Steel (Nasdaq:SCHN) and US Steel (NYSE:X).

UBS says, "Investors seem generally steeled for Q4 earnings likely dominated by losses after NUE and STLD midqtr guidance. AK results will suffer non-cash pension adjustments and coke battery closure costs that investors may dismiss. ATI and RS already warned of seasonal weakness. Investors now know prices troughed in Q4.

"Watch AK Steel (NYSE:AKS) and Reliance Steel (NYSE:RS) for guidance, too early for U.S. Steel (X) exuberance: Q4 metals names under coverage just AKS and RS typically offer forward quarter guidance. We think AKS could top Q1 expectations as cost pressures log, but visibility is difficult given coke battery closure and other costs. Better pricing can help RS and we see a strong Q1 but it could be vulnerable to margin pressure.

"Our top ways to play steel prices are Steel Dynamics (STLD), Schnitzer Steel (SCHN), and X, and we downgrade AKS to Sell as we believe electrical steel will lag and drag results."

Steel Dynamics was trading at $18.93, up $0.02, or 0.11 percent, as of 1:32 PM EST. Schnitzer Steel was trading at $64.36, up $0.30, or 0.47 percent. US Steel was at $56.92, down $0.16, or 0.28 percent.

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