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Materials Sector is Showing Relative Strength: 3 Stocks to Buy
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After a strong start to the year, in February we began to see that strength falter. Last week in particular was challenging for the market and the S&P 500 was down about -1%.
All the major sector ETFs had a challenging performance over the last week as well. But one sector bucked the trend and outperformed, the Materials ETF (XLB - Free Report) . Looking deeper into the components of XLB there were only a few stocks that were holding things up.
The relative strength of the ETF brought to my attention the sector strength, and using the Zacks Rank for assistance I identified three highly ranked materials stocks that have a high likelihood of strong near-term performance.
Image Source: Zacks Investment Research
Nucor
Nucor (NUE - Free Report) is a manufacturer and seller of steel and steel products. The company's Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products among a number of other products for the construction, automotive, and semiconductor industries. Over the years, the company has grown through acquisitions as well as by tapping new markets and expanding geographically.
Nucor has shown itself to be a resilient stock over the last year, which has been extremely challenging for many stocks. Additionally, NUE has outperformed the S&P 500 over the last ten years, albeit with a great deal more volatility.
Image Source: Zacks Investment Research
Furthermore, from a technical perspective, the weekly candlestick chart of NUE shows a bullish pattern. Over the last five weeks NUE stock has built a clear bull flag. If price can break out of this consolidation on strong volume, it should launch the stock to new all-time highs. Alternatively, a break below the 160 level would invalidate the setup.
Image Source: TradingView
Nucor currently boasts a Zacks Rank #1 (Strong Buy), indicating an upward earnings revisions trend. Current quarter earnings have been revised higher by 12% over the last 30 days, and current year earnings a whopping 14% higher over the last 60.
Image Source: Zacks Investment Research
From a valuation perspective NUE is interesting as well. Trading at a one-year forward earnings multiple of 13x, it is below its 10-year median of 15x, although it is already well off its recent low of 3x. Nucor also offers a dividend yield of 1.2%, which has grown 6% annually over the last 5 years.
Image Source: Zacks Investment Research
Steel Dynamics
Steel producers have been one of the strongest industries in the market this year, and on top of its price performance, it currently ranks in the top 9% of the Zacks Industry Rank. Steel Dynamics (STLD - Free Report) is among the leading steel producers in the U.S. It has steelmaking and coating capacity of around 16 million tons and is one of the most diversified steel companies in the country, with a broad range of specialty products.
Image Source: Zacks Investment Research
STLD stock has seen tremendous performance over the last year, dramatically outperforming the market indexes. Furthermore, the stock has been a great performer over the last decade with an annualized rate of return of 26%. That is nearly 1000% return over the last decade.
Image Source: Zacks Investment Research
Steel Dynamics is also a Zacks Rank #1 (Strong Buy) stock, indicating a positive earnings revision trend. Earnings have been revised significantly higher across all timeframes.
Image Source: Zacks Investment Research
STLD is trading at a one-year forward earnings multiple of 11x, below its 10-year median of 12x. It should be noted that the stock has been bid aggressively over the last two years and is well off its low earnings multiple of 3x. Steel Dynamics also offers a dividend of 1.4%, which it has increased by 13% annually over the last five years.
Image Source: Zacks Investment Research
Linde
Linde (LIN - Free Report) is a U.K. based producer of industrial gases that are utilized in various industries like chemicals & refining, food & beverage, electronics, healthcare, manufacturing, and primary metals. The company also designs and constructs turnkey process plants for third-party customers, as well as for the gas businesses in various locations.
LIN currently earns a Zacks Rank #2 (Buy), indicating a positive earnings revision trend. The current quarter sales estimates project a -2% decline to $8 billion, and the full year sales estimates are expected to grow 2% to $34 billion. Even with the draw in the current quarter sales estimates, earnings are expected to grow 5.5% YoY to $3.09 per share. Current year earnings estimates are also expected to grow 8% YoY to $13.39 per share.
Estimates have been revised higher across all timeframes.
Image Source: Zacks Investment Research
LIN has a valuation that is quite a bit richer than the others. At 26x one-year forward earnings LIN is well above the industry average of 17x, but still in line with its five-year median of 26x. Linde offers a dividend yield of 1.3%, which has been raised by an average of 10% each of the last 3 years.
Image Source: Zacks Investment Research
Bottom Line
As the broader market begins to bump into resistance, looking for sectors with relative performance can help lead investors to winning stocks. This along with the Zacks Rank can make for a powerful filter for finding winning stocks.
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Materials Sector is Showing Relative Strength: 3 Stocks to Buy
After a strong start to the year, in February we began to see that strength falter. Last week in particular was challenging for the market and the S&P 500 was down about -1%.
All the major sector ETFs had a challenging performance over the last week as well. But one sector bucked the trend and outperformed, the Materials ETF (XLB - Free Report) . Looking deeper into the components of XLB there were only a few stocks that were holding things up.
The relative strength of the ETF brought to my attention the sector strength, and using the Zacks Rank for assistance I identified three highly ranked materials stocks that have a high likelihood of strong near-term performance.
Image Source: Zacks Investment Research
Nucor
Nucor (NUE - Free Report) is a manufacturer and seller of steel and steel products. The company's Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products among a number of other products for the construction, automotive, and semiconductor industries. Over the years, the company has grown through acquisitions as well as by tapping new markets and expanding geographically.
Nucor has shown itself to be a resilient stock over the last year, which has been extremely challenging for many stocks. Additionally, NUE has outperformed the S&P 500 over the last ten years, albeit with a great deal more volatility.
Image Source: Zacks Investment Research
Furthermore, from a technical perspective, the weekly candlestick chart of NUE shows a bullish pattern. Over the last five weeks NUE stock has built a clear bull flag. If price can break out of this consolidation on strong volume, it should launch the stock to new all-time highs. Alternatively, a break below the 160 level would invalidate the setup.
Image Source: TradingView
Nucor currently boasts a Zacks Rank #1 (Strong Buy), indicating an upward earnings revisions trend. Current quarter earnings have been revised higher by 12% over the last 30 days, and current year earnings a whopping 14% higher over the last 60.
Image Source: Zacks Investment Research
From a valuation perspective NUE is interesting as well. Trading at a one-year forward earnings multiple of 13x, it is below its 10-year median of 15x, although it is already well off its recent low of 3x. Nucor also offers a dividend yield of 1.2%, which has grown 6% annually over the last 5 years.
Image Source: Zacks Investment Research
Steel Dynamics
Steel producers have been one of the strongest industries in the market this year, and on top of its price performance, it currently ranks in the top 9% of the Zacks Industry Rank. Steel Dynamics (STLD - Free Report) is among the leading steel producers in the U.S. It has steelmaking and coating capacity of around 16 million tons and is one of the most diversified steel companies in the country, with a broad range of specialty products.
Image Source: Zacks Investment Research
STLD stock has seen tremendous performance over the last year, dramatically outperforming the market indexes. Furthermore, the stock has been a great performer over the last decade with an annualized rate of return of 26%. That is nearly 1000% return over the last decade.
Image Source: Zacks Investment Research
Steel Dynamics is also a Zacks Rank #1 (Strong Buy) stock, indicating a positive earnings revision trend. Earnings have been revised significantly higher across all timeframes.
Image Source: Zacks Investment Research
STLD is trading at a one-year forward earnings multiple of 11x, below its 10-year median of 12x. It should be noted that the stock has been bid aggressively over the last two years and is well off its low earnings multiple of 3x. Steel Dynamics also offers a dividend of 1.4%, which it has increased by 13% annually over the last five years.
Image Source: Zacks Investment Research
Linde
Linde (LIN - Free Report) is a U.K. based producer of industrial gases that are utilized in various industries like chemicals & refining, food & beverage, electronics, healthcare, manufacturing, and primary metals. The company also designs and constructs turnkey process plants for third-party customers, as well as for the gas businesses in various locations.
LIN currently earns a Zacks Rank #2 (Buy), indicating a positive earnings revision trend. The current quarter sales estimates project a -2% decline to $8 billion, and the full year sales estimates are expected to grow 2% to $34 billion. Even with the draw in the current quarter sales estimates, earnings are expected to grow 5.5% YoY to $3.09 per share. Current year earnings estimates are also expected to grow 8% YoY to $13.39 per share.
Estimates have been revised higher across all timeframes.
Image Source: Zacks Investment Research
LIN has a valuation that is quite a bit richer than the others. At 26x one-year forward earnings LIN is well above the industry average of 17x, but still in line with its five-year median of 26x. Linde offers a dividend yield of 1.3%, which has been raised by an average of 10% each of the last 3 years.
Image Source: Zacks Investment Research
Bottom Line
As the broader market begins to bump into resistance, looking for sectors with relative performance can help lead investors to winning stocks. This along with the Zacks Rank can make for a powerful filter for finding winning stocks.