Hot Stocks Break Out To Lead This Top Steel-Sector Play Near Buy Point

Hot stocks in the steel industry are breaking out amid strong demand and bullish growth prospects as the world recovers from the Covid-19 pandemic.


That’s helping steel producers nab the No. 4 spot of the 197 industry groups tracked by IBD. Progress by the Senate on a $1.2 billion bipartisan infrastructure deal may also be boosting the stocks.

Keeping track of multiple earnings and breakouts can be daunting. But a steel-focused fund like VanEck Vectors Steel (SLX) can help provide exposure to global hot stocks in the sector. The $187.8 million fund, which marks its 15th anniversary in October, tracks the NYSE Arca Steel Index.

The U.S. represented the biggest country weighting as of June 30, at just over 33% of assets. Brazil was next at 25%, Australia 15% and the Netherlands 9%. The rest included smaller positions in Luxembourg, South Korea, India and China.

In terms of sectors, materials accounted for more than 94% of the 26-stock portfolio. Energy and industrials made up north of 4% and 1%, respectively.

Metal Miners Lead Portfolio

Going into Thursday, Brazil-based Vale (VALE) and U.K.-based Rio Tinto (RIO) led top holdings at about 15% each. Vale’s 99 Composite Rating puts it at the top of the 35-stock metal ores mining group. It’s up more than 40% this year. Rio, up 23% this year, is also among the group’s hot stocks.

ArcelorMittal (MT), Nucor (NUE) and Ternium (TX) rounded out the top five. Breakouts among some of the major holdings bode well for the fund and point to strength in the industry.

ArcelorMittal cleared a 34.06 buy point of a shallow consolidation on Wednesday. It extended its gains on Thursday, after the Luxembourg-based steel giant’s Q2 results beat Wall Street targets by a wide margin. ArcelorMittal now expects global steel consumption to rise 7.5%-8.5% this year, boosting its forecast range from 4.5%-5.5%.

“On the financial side, the second quarter has seen a continued strong recovery backdrop alongside a sustained lean inventory environment,” CEO Aditya Mittal said in a statement. “This resulted in even healthier spreads in our core markets than in the first three months of the year, supporting the best quarterly and half year result we have reported since 2008.”

Hot Stocks Include IBD 50 Name

IBD 50 stock Cleveland-Cliffs (CLF) is also a top 10 holding. Shares cleared a 24.87 buy point of a cup base on Thursday, according to IBD MarketSmith chart analysis. On Wednesday, Cleveland-Cliffs climbed past a 23.45 early entry of a short double-bottom base. It’s extended from that buy point.

The relative strength line, which compares a stock’s performance to the S&P 500, is at a new high. That’s a bullish sign. The Cleveland-based steel producer was recently featured in IBD 50 Stocks To Watch.

The top 10 holdings accounted for nearly three-quarters, or 74%, of total assets.

Steel Dynamics (STLD), the 11th biggest holding, cleared a 63.28 double-bottom buy point on Thursday. It’s mostly risen since the Indiana-based steel producer’s strong results on July 19. Steel Dynamics, which posted a 623% EPS surge on 113% higher revenue, sees strong demand lasting.

SLX has gained nearly 50% this year. That’s well ahead of the S&P 500’s 18% year-to-date return. The ETF is about 3% away from a 68.22 buy point of a 12-week consolidation. It’s rallied nearly 300% from its March 2020 coronavirus crash lows to its May 10 high.

The VanEck fund charges a 0.67% expense ratio.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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