Scalper1 News
Close watchers of the stock market witnessed a rotation out of conservative, dividend-paying utilities and REITs during the past week. The fresh cash seems to be going into steel makers, machinery and related companies. Rotations occur seemingly spontaneously when money managers decide one group has risen enough and sell, redeploying the cash elsewhere. Investors should watch the rise and fall of IBD’s 197 industry groups for clues about rotation. Steel makers are the No. 3 industry group based on six-month performance, up from No. 175 three months ago. A look at the charts of some of the leading steel companies shows a sudden run-up. Several have risen almost uninterrupted this year. Steel is a cyclical industry, so an improvement in earnings and stock price could foresee an improvement in the manufacturing sector. Steel Dynamics ( STLD ), a leading member of the group, is not far from making multi-year highs despite a 47% decline in 2015 earnings per share. Last week, it reported that Q1 earnings rose 53% from a year earlier. Analysts expect EPS to nearly double this year. The stock has gained nearly 60% since a Jan. 20 intraday low but is hitting upside resistance near 25. The stock is just 4% below a September 2014 peak of 25.15. Domestic steel makers have been pinched by falling prices resulting from a supply glut and from cheaper imports resulting from a rising dollar. CEO Mark Millett told analysts that overall demand in the first quarter was unchanged with heavy equipment, agriculture and energy markets weaker and automobiles and construction were stronger. Meanwhile, Steel Dynamics’ scrap recycling business swung from an operating loss to a profit. U.S. Steel ( X ) once produced two-thirds of all U.S. steel. It stock has rebounded 200% since late January. But the profit picture isn’t so rosy. It lost money last year and is expected to lose even more money this year. Shares of Nucor ( NUE ), the nation’s largest steel producer, has risen 45% since late January. After four quarters of declining EPS growth, it posted a 28% increase in Q1 to 23 cents a share. Analysts expect a 33% increase to 48 cents in the current quarter and a 14% rise this year. Steel producers are part of the metals sector, ranked No. 3 out of 33 sectors. The sector has risen 15% year to date through Monday’s IBD. A single stock in the sector makes the cut as stocks with EPS and Relative Strength ratings of 80 or above with an IPO in the last 15 years. That’s RBC Bearings ( ROLL ), which is part of the No. 5 metal processing and fabrication industry group. The company makes precision ball bearings used in aircraft and industrial applications. In near lock-step with the steel companies, the stock began a sharp recovery in January that has carried it 37% higher since January. The company has experienced moderate but steady growth in recent years. Revenue growth has accelerated from 0% to 26% to 32% to 36% in recent quarters. Scalper1 News
Scalper1 News