Although the speculation surrounding the Fed nearing the end of interest rate hikes has increased of late due to easing inflation, the banking sector turmoil fostering a credit crunch in the economy has triggered recession fears.
Amid this backdrop, fundamentally sound metal stocks ESAB Corporation (ESAB), Gibraltar Industries, Inc. (ROCK), and Ryerson Holding Corporation (RYI), could help you mine for profits. Let’s delve deeper to know more.
In the first quarter, the World Bank’s metals and minerals price index rose 10%, reflecting optimism for a strong recovery in China and improved global growth prospects. Precious metals prices are expected to increase by 6% in 2023 as safe-haven demand rises amid elevated uncertainty with respect to future growth prospects, ongoing concerns about inflation, and financial stress in the first quarter.
Moreover, the World Steel Association forecasted that steel demand will rebound by 1.3% in 2023 and 2.5% in 2024, after falling by 2.6% in 2022.
Moreover, as automated manufacturing systems gain traction, it allows metal manufacturing companies to increase efficiency and production, improve safety on the manufacturing floor, and enhance product quality.
The global metal market is expected to reach $5.46 trillion by 2027, growing at 6.6% CAGR. Moreover, investors’ interest in metal stocks is evident from the iShares MSCI Global Metals & Mining Producers ETF (PICK) 2.7% returns over the past six months.
Considering these factors, investors could consider investing in the featured stocks.
ESAB Corporation (ESAB)
ESAB is involved in the fabrication and gas control technology. It provides advanced equipment, consumables, gas control equipment, robotics, and digital solutions, which are used in cutting, joining, and automated welding.
On May 11, backed by its strong financials, the company declared a quarterly dividend of $0.06 per share of its common stock. The dividend is payable on July 14, 2023. ESAB’s four-year average dividend yield is 0.18%, and its current dividend translates to a 0.34% yield.
In terms of trailing-12-month levered FCF margin, ESAB’s 7.98% is 53.6% higher than the 5.20% industry average, while its trailing-12-month EBIT margin of 13.78% is 42.9% higher than the industry average of 9.64%.
ESAB’s net sales increased 5.6% year-over-year to $684 million in the fiscal first quarter that ended March 31, 2023. Its gross profit grew 10.3% from the year-ago value to $247.39 million, while its operating income rose 8.4% from the prior-year quarter to $90.66 million.
The company’s attributable net income amounted to $31.90 million and $0.52 per share, respectively, in the same period. Also, its adjusted EBITDA stood at $118 million, up 7.9% year-over-year.
For the fiscal year 2023, the company expects a total core sales growth of 4% to 6% and its core adjusted EBITDA to come in between $430 million and $450 million, while its core adjusted earnings per share is expected to be between $3.85 and $4.05.
Street expects its revenue to increase 7.7% year-over-year to $621.25 million in the second quarter ending September 30, 2023. Its EPS is expected to grow by 5.5% year-over-year in the next quarter to reach $0.97. It surpassed the EPS estimates in all four trailing quarters, which is promising.
Over the past three years, ESAB’s net income and EBIT have grown at 9% and 8.5% CAGRs, respectively. Moreover, its EBITDA has grown at 5.8% CAGR over the same period.
ESAB’s shares have gained 37.3% over the past six months to close the last trading day at $59.35.
ESAB’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, translating to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, it has a B grade in Momentum and Sentiment. It is ranked #6 of 33 stocks in the B-rated Industrial - Metals industry. Click here to see the other ratings of ESAB for Growth, Value, Stability, and Quality.
Gibraltar Industries, Inc. (ROCK)
ROCK is a manufacturer and provider of products and services for the renewable energy, residential, agtech, and infrastructure markets. It operates through four segments: Renewables; Residential; Agtech; and Infrastructure.
In the fiscal first quarter that ended March 31, 2023, ROCK’s net revenues amounted to $293.27 million, while its gross profit increased 18.6% year-over-year to $76.93 million. During the same period, its adjusted income from operations rose 13.9% from the prior-year quarter to $30.68 million.
Also, its non-GAAP net income came in at $21.76 million and $0.70 per share, representing a 10.2% and 16.7% year-over-year increase, respectively.
The consensus EPS estimate of $1.14 for the third quarter (ending September 2023) represents a 1.8% rise year-over-year. The consensus revenue estimate of $392.53 million for the next quarter indicates a marginal increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
ROCK’s revenue and EBITDA have grown at 15.5% and 16.7% CAGRs over the past three years, respectively. Also, its EPS has grown at an 8.7% CAGR in the same period.
The stock’s trailing-12-month levered FCF margin of 7.50% is 44.4% higher than the 5.20% industry average. Likewise, its trailing-12-month ROTC and ROTA of 10.21% and 7.29% are 47% and 43.8% higher than the industry averages of 6.95% and 5.07%, respectively.
Over the past year, the stock has gained 46.7% to close the last trading session at $54.63.
It is no surprise that ROCK has an overall rating of B, equating to Buy in our proprietary rating system. It has an A grade for Momentum and Sentiment. Out of 33 stocks in the same industry, it is ranked #5.
In addition to the POWR Ratings stated above, we have also given ROCK grades for Growth, Value, Stability, and Quality. Get all ROCK ratings here.
Ryerson Holding Corporation (RYI)
RYI is a value-added processor and distributor of industrial metals like carbon, stainless, and alloy steels, aluminum, nickel, and red metals in various shapes and forms. Along with its subsidiaries, the company operates in the United States, Canada, Mexico, and China.
On May 1, RYI declared a quarterly dividend of $0.18 per share of common stock, payable to its shareholders on June 15, 2023. The company’s four-year average dividend yield is 0.49%, and its current dividend translates to a 2.10% yield.
In addition, its board of directors also approved increasing the share repurchase authorization by approximately $80 million to $100 million and extending the term from August 2024 to April 2025. This reflects the company’s strong cash flows.
On March 2, RYI acquired BLP Holdings, LLC, which offers advanced processing solutions through its divisions. This strategic acquisition should help RYI expand its offerings in the future.
Alan Singleton, RYI's President, West Region, said, "Our investment in BLP provides an opportunity to further diversify our offerings, including additional toll processing services, as we strengthen the capabilities of our Ryerson service-center network."
For the first quarter that ended March 31, 2023, RYI’s net sales amounted to $1.40 billion. During the same period, its adjusted net income and non-GAAP EPS came in at $47.30 million and $1.27, respectively. Also, its total debt stood at $395.10 million, down 28.3% year-over-year.
In addition, its cash and cash equivalents of $43.70 million increased by 11.5% compared to $39.20 million for the period that ended December 31, 2022.
Analysts expect RYI’s EPS and revenue to amount to $1.31 and $1.40 billion, respectively, in the current quarter ending June 30, 2023. Moreover, it surpassed the revenue estimates in three of the trailing four quarters.
RYI’s EBITDA and net income have increased at CAGRs of 28.9% and 58.3%, respectively, over the past three years, while its EPS has improved at a 58.6% CAGR.
The stock’s trailing-12-month ROCE of 34.97% is 223.1% higher than the 10.83% industry average. Its trailing-12-month ROTC and ROTA of 17.29% and 11.44% compare with the 6.12% and 4.84% industry averages.
The stock has gained 29.9% over the past six months to close the last trading session at $34.23.
RYI’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment and Quality. It is ranked #7 within the same industry. Click here to see the additional ratings for RYI (Growth, Momentum, and Stability).
What To Do Next?
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ESAB shares were trading at $59.33 per share on Friday afternoon, down $0.02 (-0.03%). Year-to-date, ESAB has gained 26.56%, versus a 7.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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