Deutsche Bank Sees More Upside For Overbought Steel Stocks

Shares of X and STLD have been strong in recent months

Jan 16, 2018 at 10:14 AM
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Analysts at Deutsche Bank are calling for higher steel and metal prices over the next year or two, with 2018 in particular likely benefiting from strong demand. The brokerage firm also cited the Trump administration's $1 trillion infrastructure proposal and a potential drop in steel imports as two other bullish drivers. Two names that could benefit, according to Deutsche, are United States Steel Corporation (NYSE:X) and Steel Dynamics, Inc. (NASDAQ:STLD).

Specifically, Deutsche Bank upped its price target on X shares to $46 from $36, helping the stock rise 1.2% today to trade at $39.62. The stock has been trending higher for months, more than doubling since its May low below $19, putting its 14-day Relative Strength Index (RSI) at 72 -- meaning it's technically overbought.

Still, we may see more bull notes come through on the equity. As it stands now, six of 14 covering brokerage firms still have "hold" or "strong sell" ratings in place, and X is pushing above its average 12-month price target of $38.15.

Meanwhile, part of the shares' rise could be due to a sharp decrease in short interest. In fact, the number of shares held by short sellers has almost been cut in half since the July peak, including a nearly 10% decline in the most recent reporting period.

Turning to STLD, the shares are also overbought, based on their 14-day RSI of 72. This comes after the stock's three-month gain of 30%, last seen trading at $46.89, and fresh off a record high of $47.46. But Deutsche sees more upside, raising its price target to $52 from $45.

Unlike its sector peer, most analysts are already bullish on Steel Dynamics. By the numbers, eight of the 11 covering brokerage firms say the security is a "strong buy." However, the shares are now trading above their average 12-month price target of $46.54, so there is a chance more price-target hikes could come through.

 


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