2 Steel-Willed Stock Ideas to Invest in 2018

Earlier this month, the President announced tariffs on foreign-manufactured (and imported into the U.S.) steel and aluminium of 25% and 10% respectively. There has since been a lot of speculation of what these measures might mean. Both, proponents and opponents, have made their case for and against the levy.

However, until more is known about the exact nature of the proposals (e.g.: Will it be on ALL or some products? Will there be exemptions, or will it be ‘across the board’?), there’s no point making major changes to one’s portfolio. But here are some related ideas to consider.

Nerves of Steel

IF you believe that they will trigger a full-scale trade war between the U.S. and the rest of the world; and IF you are convinced that will trigger another global recession, then these ideas aren’t for you!

IF, however, you have nerves of steel to withstand all the noise, AND you believe that what’s been recommended will either be used as a bargaining ploy for favourable trade terms for the U.S, OR that they’ll likely be “watered down” and “targeted” before implementation, then you should consider aligning your portfolio with some of the potential winners resulting from the announcement (or from their subsequent implementation in some form).

The Picks

Two potential winners of the ‘best case’ scenario are:

Pennsylvania-based United States Steel Corp (X), which operates in a fairly broad spectrum of the steel industry. It has interests ranging from industrial machinery to infrastructure and construction, to auto and house-hold appliances.

North Carolina-based Nucor Corporation (NUE), that counts clients in the top three industrial sectors of the U.S. economy, including Auto, Construction and Energy.

Should the tariff-tantrum play the way it’s proponents are hoping it will, both X and NUE will inherit significant top-line and bottom-line benefits. Firstly, the new levy’s will make imported steel more expensive for steel users in the U.S., and they (steel users) may want to shift to using more domestic steel – supplied courtesy of X and NUE!

Secondly, and this will depend entirely on how much these tariffs will increase the cost of foreign-manufactured steel, both companies could also raise their own prices, giving them greater margin power.

Source: Stockcharts.com

Since the date of the announcements, both X and NUE have made impressive gains, of nearly 31+% and 12+% respectively. Not bad moves considering that the dust still hasn’t settled on this story as yet!

Melting Point

Depending on how things play out, adding these two names to your portfolio could give your positions some lift, especially given the sectors in which both X’s and NUE’s clients are. For instance, both have clients in the building and construction industry too, that are poised to benefit from any positive movement on the Infrastructure spending file.

On the other hand, if you were more inclined to play the “Buy on rumour sell on news” trade, even then, now would probably be a good time to step into these names – though careful monitoring of the fluid situation is called for. All your gains could reach a melting point if Europe, Canada, China or the rest of the world decide to retaliate against some of the two company’s U.S. client base – like the Auto and Appliance sectors.

The author does not have any position in the stocks mentioned in this article.

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