Why You Should Keep Reliance Steel (RS) In Your Portfolio

Reliance Steel & Aluminum Co. (NYSE:RS) is benefiting from continued demand strength across aerospace and automotive end-markets, focus on high-margin products and strategic acquisitions.

Shares of the metals service center company have shot up 41.1% so far this year, outperforming the 16.7% rise of its industry.

Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

What’s Favoring the Stock?

Reliance Steel is seeing strong demand in the aerospace and automotive markets. The company, in its second-quarter call, said that it is optimistic about business conditions for the third quarter. It expects steady end-market demand in the quarter.

Reliance Steel is witnessing healthy demand for its heat-treated aluminum products in the aerospace market. It remains committed to boost its market share in aerospace.

Moreover, strong demand is witnessed in the automotive market, supported by increased use of aluminum in the industry. The company is seeing healthy demand for its processing services in this market and remains committed to invest in facilities and value-added processing equipment to address the rising demand for the services it offers.

Reliance Steel also continues with its aggressive acquisition strategy to tap growth opportunities. Notably, the buyout of All Metals Holding complements Reliance Steel’s growth strategy and meets its criteria of buying high quality businesses that are immediately accretive to its earnings. All Metals’ focus on high return, toll processing and logistics services further bolsters Reliance Steel’s solid position in these areas.

A Few Downsides

Reliance Steel is expected to face some pressure on metal pricing in the third quarter. As metal prices, especially for carbon steel, fell through the second quarter, Reliance Steel expects average selling price per ton for the third quarter to be down 1.5-2.5% compared with second-quarter tally.

The company is also exposed to pressure on its sales volumes. Its overall sales volume fell roughly 5% year over year in the second quarter due to lower shipments. Volume pressure will likely continue in the third quarter as indicated by the company’s guidance. Reliance Steel expects tons sold to be down 4-6% sequentially in the third quarter factoring in normal seasonal patterns that include lower shipping volumes due to customer shutdowns and vacation schedules.

Stocks Worth Considering

A few better-ranked stocks worth a look in the basic materials space include Arconic Inc (NYSE:ARNC) , Kinross Gold Corporation (NYSE:KGC) and Alamos Gold Inc. (TSX:AGI) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arconic has an estimated earnings growth rate of 50% for the current year. Its shares have moved up 24% in the past year.

Kinross has projected earnings growth rate of 155.7% for the current year. The company’s shares have surged around 76% in a year’s time.

Alamos Gold has estimated earnings growth rate of 320% for the current year. The company’s shares have rallied roughly 39% in a year’s time.

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