Steel Dynamics Augmenting The Steel Up-Cycle With Its Own Excellence

One of the traits that often trips up investors in commodity stocks is the reality that it is often the inferior companies that do better during market upswings. To that end, while Steel Dynamics (STLD) remains one of the best-run steel companies out there (and frankly, one of the best companies I think I've followed), the shares have notably lagged the likes of U.S. Steel (X), AK Steel (AKS), and ArcelorMittal (MT) since the sector troughed early in 2016. Fortunately, there is some compensation - while holding cyclical stocks like Steel Dynamics is often not such a good idea, Steel Dynamics's outperformance during the downswings helps to compensate, and the shares have done far better than its peer group over the last five years.

In any case, these are good days to be a steelmaker, and I expect Steel Dynamics's own operating excellence to maximize the value in this upswing. The company has done a good job of building share in targeted markets like autos, and I see ongoing opportunities for the company to improve its portfolio over the next few years. Valuation is a little trickier, though. Modeling cyclical commodity companies is a brutal exercise (nobody saw this big recovery two or three years ago), but I don't see as much value in Steel Dynamics as I do in other metal names.

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Steel Dynamics Augmenting The Steel Up-Cycle With Its Own Excellence