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2 Iron Ore Stocks to Buy as Steel Prices Keep Trending Higher

President Biden's $1.2 trillion infrastructure bill, which is intended to propel the U.S. economy to transformative growth, bodes well for the steel industry. Furthermore, output cuts imposed by the world's largest steel producer, China, have lately pushed steel prices to all-time highs. In this scenario, we believe it may be wise to bet on iron ore stocks BHP Group (BHP) and Vale S.A (VALE) because they are poised to benefit from the steel price rally. Read on.

The industrial metals sector is on track to reclaim its pre-pandemic levels with the reopening of industrial activities around the globe. Also, the Biden administration's $1.2 trillion bipartisan infrastructure framework, which the Senate passed recently, bodes well for the industrial metals sector.

Since steel is widely used in construction and manufacturing, Biden’s proposed spending could be a transformational investment that will afford steel producers great growth opportunities. Furthermore, because China has vowed to limit steel output this year to curb industrial pollution, steel prices are soaring.

And because this spike in steel prices is likely to continue in the near term, we think iron ore stocks BHP Group (BHP) and Vale S.A (VALE) could be ideal bets to cash in on the uptrend.

BHP Group (BHP)

Headquartered in Australia, BHP explores for, develops, and produces oil and gas properties, and mines for copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal internationally. Petroleum; Copper; Iron Ore; and Coal are the company’s operational segments.

BHP’s profit from operations increased 80% year-over-year to $25.91 billion for the year ended June 30, 2021. Its net operating cash flow grew 73% from its  year-ago value to $27.23 billion. The company’s underlying EBITDA has surged 69% from the prior-year period to $37.38 billion.

The company’s revenue is expected to grow 5.6% year-over-year to $64.20 billion in its fiscal year 2021. The stock has gained 8.9% in price over the past year.

BHP's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

BHP is also rated a B grade for Growth, Value, and Quality. Additionally, within the Industrial -Metals industry, it is ranked #5 of 38 stocks.

To see additional POWR Ratings for Stability, Momentum, and Sentiment for BHP, click here.

Click here to check out our Industrial Sector Report for 2021

Vale S.A (VALE)

VALE is a Brazil-based producer and seller of iron ore and iron ore pellets for use as raw materials in steelmaking internationally. The company operates through Ferrous Minerals, Base Metals, and Coal segments.

This month, VALE unveiled a new product that could reduce greenhouse gas (GHG) emissions in steel production by up to 10% for its steelmaking clients. The "green briquette" is constituted from iron ore and a technical agglomerate solution that contains sand from the treatment of mine tailings and can withstand the high temperatures of the blast furnace without dissolving.

During the second quarter, ended June 30, 2021, VALE’s total revenue increased 121.8% year-over-year to $16.68 billion. Its operating income grew 366.1% from its year-ago value to $9.71 billion. The company’s net profit surged 662.4% from the prior-year quarter to $7.59 billion, while its EPS increased 684.2% year-over-year to $1.49.

A  $5.53 consensus EPS estimate for  the current year represents a 416.8% improvement year-over-year. In addition, analysts expect VALE's revenue to increase 55.3% year-over-year to $62.83 billion in its fiscal year 2021. The stock has gained 48.8% in price over the past year and 5.7% over the past nine months.

VALE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Quality, and a B for Value and Growth. In the Industrial -Metals industry, it is ranked #4 of 38 stocks.

In total, we rate VALE on eight different levels. Beyond what we've stated above, we have also given VALE grades for Stability, Sentiment, and Momentum. Get all the VALE ratings here.

BHP shares were trading at $57.85 per share on Thursday morning, down $2.47 (-4.09%). Year-to-date, BHP has declined -0.73%, versus a 19.78% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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