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Commodity Stocks Outlook – Is Steel Sector a Buy After Goldman Upgrade?

Goldman Sachs (GS) just upgraded its ratings on a few top commodity stocks including U.S. Steel (X), AK Steel (AKS) and Steel Dynamics (STLD).

In a note, the investment bank said it sees “continued strength in the flat rolled markets in the upcoming seasonally strong steel demand period” and “a market improvement in flat rolled steel demand making this market tight in the coming months, from over-supplied just a few months ago.”

Of course, this news is a bit late for investors who haven’t shared in the run-up of commodity stocks as of late. AK Steel stock is up 47% in three months and U.S. Steel is up about 54% … so there is a risk that some of the upside has been priced in lately, leaving new money out of the rally. In fact, today alone major steel stocks were up 5% to 10% on the news.

But broadly, investors can start believing in commodity stocks as a viable investment in the coming months.

As I discuss with Charles Sizemore, editor of the Sizemore Investment Letter, a lot of the negativity in regards to overcapacity, a China slowdown and soft commodity prices has been baked into the materials sector. And while there are no guarantees that now is the perfect time for a cyclical investment like one in steel stocks, it’s realistic to start wondering where the cash is going to flow next if things stay “risk on.”

Surely with the froth in tech and the underperformance in consumer staples and utility stocks, it’s worth considering a new place for the money to rotate into … and commodity stocks seem a good a place as any.

Take a listen for more details on the outlook for commodity stocks, and Charles’ take on a unique steel pipe investment, Tenaris (TS).

More on Commodity Stocks and Steel

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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