The steel industry
The high price of steel should offer manufacturers an opportunity to better track their businesses in the next years, according to JPMorgan.
Analyst Michael Glick began Wednesday coverage of stocks in the steel sector, noting to clients that steel prices were at the peak, but the recent increase should provide big firms enough money to rebuild their enterprises.
“Even assuming a pricing pullback beginning in 2H:21, the cash flow windfall provided by prices provides a generational opportunity for integrated steel to de-lever, fund pensions, reposition the businesses for a low-CO2 world, and generate returns throughout the cycle,” according to the note.
Cleveland-Cliffs and Steel Dynamics are JPMorgan’s top picks in the space, with both stocks rated overweight. According to the investment firm, both companies are well-positioned to capitalize on the short-term mismatch between supply and demand.
“In terms of positioning within the equities, one factor to consider is timing, and STLD has that in spades as its new flat-roll mill on the Texas Gulf Coast comes online at a time of historically tight supplies (within a few months),” according to the note. “CLF has that as well, given its 2020 acquisitions, and is positioned with ample raw material flexibility, particularly with the HBI plant—a key differentiator, in our opinion, and its negotiations on the auto side should help protect margins for that piece of business.”
Glick set price targets of $39 per share for Cleveland-Cliffs and $107 per share for Steel Dynamics, both of which are roughly 70% higher than where the stocks closed on Tuesday. Steel Dynamics was previously covered by a JPMorgan analyst who had a price target of $33 per share for the stock.
JPMorgan rates the following stocks in the sector:
Overweight Reliance Steel
GrafTech – Excessive
Stelco – Commercial Metals – Overweight – Neutral
Carpenter Tech – Neutral Nucor – Neutral US Steel – Underweight
Making food more sustainable
According to analysts at Credit Suisse, a range of US and worldwide food inventories are expected to outperform as businesses address critical problems such as carbon emissions, hunger and waste.
Aramark, a multinational food service firm, is a bank pick because it anticipates a “recovery opportunity” post-Covid, with “greater demand for well-capitalized food service operators.”
The bank also likes Trane Technologies for its “continued investment spending” that is likely to increase market share, as well as its “We Move Food” philanthropic program.
Credit Suisse chose Mexican grocery store Walmex for its sustainability efforts as well as its “unrivaled” market position – competing with both informal stores and large e-commerce operators.
Deere, a manufacturer of farm equipment, is also rated outperform by analysts, who like its products that improve efficiency, such as See & Spray, which uses artificial intelligence to distinguish between crops and weeds. The bank also touts its “strong” fundamentals and the potential to increase margins through software sales.
Stocks in Europe
The bank favors insecticides company BASF for its leadership position in crop treatment products, including natural solutions, and it also favors food testing firm Eurofins, which supplies some of the world’s largest retailers and producers, including Walmart and Nestle.
According to Credit Suisse, the revenue of meal delivery service HelloFresh will more than triple between 2019 and 2023. There is less waste because it sends food kits in measured portions to people’s homes, and the bank appreciates its “brand, scale, and price leadership.”
Kerry Group was chosen by Credit Suisse for its “ability to pivot towards faster-growing areas” and “swift recovery in volume growth.”
Marks & Spencer, a British food and clothing retailer, is also one of the bank’s preferred stocks for its 15-year-old “Plan A” sustainability initiative. It also likes its food delivery partnership with software firm Ocado and believes its online clothing business has “strong upside potential.”
Stocks from Asia
Marico, based in Mumbai, was chosen for its “strong brands in hair oils and foods, which we believe have the potential to offer double digit growth over the next few years.” Thai Union, whose American brands include Genova tuna, is another favorite of the bank. The company began distributing plant-based protein products in March, and the stock is trading at a nearly 15% discount to its historical average, according to the bank.
Credit Suisse has singled out Thai convenience store operator CP All and expects it to fare well in the aftermath of the pandemic. “(We) anticipate that the company will resume a growth path driven by store expansion, margin enhancement, and lower interest expense,” the analysts wrote. According to Credit Suisse, CP All sources raw materials from areas where there is no deforestation or damage to marine life.
‘At a very early stage’
According to Credit Suisse, one of the most pressing issues for the food industry is the disparity between dietary guidelines in North America and their impact on the environment if they were implemented. For example, if everyone on the planet ate according to U.S. federal guidelines, it would take land and resources 3.5 times the size of the Earth to produce enough. According to the analysts, “the ecological footprint of virtually all national guidelines is far too large.” “Moving to a plant-based diet works from an environmental standpoint,” they added, admitting that such food can be prohibitively expensive for some consumers.
A “significant” number of companies addressing global food issues are private and at a “very early stage” of development. “We highlight 25 names to cater to investors seeking publicly traded companies with exposure to the theme of sustainable food,” the analysts wrote.