I have been looking for a stock to short in the Basic Materials sector for weeks based on my sector analysis that I perform each week and I may have just found one.
On May 14, U.S. President Donald Trump credited hit tariffs on imported steel with rebuilding the U.S. steel industry, which he said is now “booming.” However, shares of North Carolina steel producer Nucor Corporation are down 25.9 percent in the past year, and one analyst double downgraded the stock on Friday.
Bank of America analyst Timna Tanners downgraded Nucor from Buy to Underperform and lowered her price target from $68 to $50.
Tanners said Nucor will likely be one of the first victims of what she calls a “steelmageddon” supply glut that will persist through 2021. As a result of oversupply concerns, Bank of America cut its 2022 benchmark hot rolled coil steel price forecast from $590/ton to just $475/ton.
“Given a worse 2019E price view, risks of peak demand, and a looming supply glut in 2020-2021E, we see limited catalysts for the group and expect little incrementally positive from its June 20 investor day,” Tanners wrote in the note.
Nucor is a steel company and is part of the the ETF, SPDR Materials Select Sector, XLB Here’s a monthly chart on Nucor.
On the weekly chart, if price can pull back to the weekly supply at $58, the options on the stock are liquid enough to buy some longer term puts with a target at the weekly demand at $38.50.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.