5 Stocks To "Steel" The Show On Proposed Trump Tariffs
Zacks Investment Research | Mar 04, 2018 10:20PM ET
President Donald Trump’s proposal of imposing tariff on imported steel and aluminum saw domestic steel stocks rally on Thursday. Although certain quarters feel that this might spark a trade war and disbalance the global economy, eventually affecting profits of exporters, the proposal has been cheered by U.S. steel and aluminum manufacturers.
Domestic steelmakers see this move as Trump’s initiative to revive the steel and aluminum industry that has been declining over the last few decades. Tariff on imported steel and aluminum also makes manufacturers hopeful of more employment in the sector. So it obviously makes good sense now to add stocks from the sector to your portfolio.
Domestic Steel Stocks Rally on Trump’s Announcement
Trump announced on Mar 1 that he would impose hefty tariffs on imported steel and aluminum. An executive order on the proposed tariff of 25% on imported steel and 10% aluminum would be signed in the coming days. The President believes that such a move will help in rebuilding the U.S. steel and aluminum industry that has been treated unfairly by other countries for decades. The announcement may have sparked a debate on a possible trade war but it gave the share price of U.S. steelmakers a shot in the arm.
Close on the heels of the announcement, shares of major steel manufacturers rallied. On Mar 1, shares of AK Steel Holding Corp (NYSE:AKS) rose 9.5% and U.S. Steel Corp (NYSE:X) jumped 5.8%. Nucor Corporation (NYSE:NUE) and Steel Dynamics Inc. (NASDAQ:STLD) jumped 3.3% and 4.0%, respectively. Shares of aluminum producer Century Aluminum Company (NASDAQ:CENX) climbed 7.5%, while Alcoa Corp. (NYSE:AA) increased 1%.
While the decision was well received by domestic steel manufacturers and lawmakers, it drew flak from other quarters that fear damage to the U.S. economy. The big fear among investors is that other countries might now take similar retaliatory steps, which will hurt the global economy and trade, eventually affecting profits of U.S. exporters.
As a result, shares of manufacturers that utilize a significant amount of imported steel declined. Shares of major automakers, which were already suffering due to lower vehicle sales in February, declined further on the announcement. Shares of General Motors Company (NYSE:GM) fell 3.97%, while Ford Motor Company (NYSE:F) and Fiat Chrysler Automobiles N.V. (NYSE:F) plunged 3% and 2.8%, respectively.
Moreover, shares of heavy equipment maker Caterpillar Inc. (NYSE:CAT) declined 2.9%. United Technologies Corporation (NYSE:UTX) , The Boeing Company (NYSE:BA) and 3M Company (NYSE:MMM) dropped 3.3%, 3.5% and 1.8%, respectively.
Trump Keeps Key Campaign Promise
The United States has been suffering from manufacturing employment decline for decades now. Before getting elected, Trump campaigned heavily on his America First trade policy. The proposed imposition of a respective 25% and 10% tariff on imported steel and aluminum is a big step in this direction.
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However, Trump hasn’t taken enough measures to implement that policy since taking office. His tariff announcement could mean that he is finally keeping is election campaign promise of reviving the steel and aluminum industry in the Rust Belt, that helped him win the 2016 election.
Many of the workers form states in this area, who had voted for Barrack Obama, surprised the country by swinging toward Trump. However, Trump’s support in this area has been waning since then, and this announcement comes as a move to keep his promise and of course win back support before the 2020 election.
Will Import Tariff Really Create Steel Jobs?
Trump’s announcement comes with the objective of protecting the domestic steel and aluminum industry by increasing production, which will eventually help in creating more jobs. Trump has constantly been stressing on the need to save these industries, which he feels were not treated fairly by other countries. U.S. steelmakers lost three fourth of their jobs between 1962 and 2005.
However, a study by American Economic Associations shows that this has been primarily because of improved production technology. Most steelmakers over the last few decades have increased the level of automation on their production lines, which has increased the output per worker to five times, consequently taking a toll on workforce. Hence analysts believe that despite this announcement, the impact on employment may be far less than what one hopes.
Our Choices
Trump’s America First policy has made domestic steelmakers optimistic about the future of the industry. Such a move hints at increasing domestic steel and aluminum production, which is expected to result in higher employment. Moreover, Trump’s announcement saw shares of domestic steel and aluminum makers rally immediately.
Adding domestic steel stocks to your portfolio looks like a smart option at this point. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
United States Steel Corporation is an integrated steel producer with major production operations in the United States and Central Europe.
United States Steel Corporation has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 21.2% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
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