Heavy Metal Earnings Surge

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 |  Includes: AKS, ATI, CTPCY, USAP, ZEUS
by: Zacks Investment Research

No less than five steel stocks currently carry the esteemed Zacks #1 Rank (strong buy) this week. And four of the five have been there for over a month.

In the list below, the first three are classified as standard producers and occupy a Zacks Industry Rank of 163, near the bottom of the Neutral category. The last two names are considered "specialty" steel companies and their industry grouping holds the 26th spot, making it very worthy of attention.

AK Steel (NYSE:AKS): Zacks #1 Rank since April 1, largely because consensus earnings estimates have risen in the last 90 days from $0.84 to $1.26 for this year, and from $1.46 to $1.87 for 2012.

Olympic Steel (NASDAQ:ZEUS): Zacks #1 Rank since May 10, due to analyst estimate revisions in the last 60 days going from consensus $1.69 to $2.54 this year, and from $2.19 to $2.63 for 2012.

Universal Stainless & Alloy (NASDAQ:USAP): Zacks #1 Rank since April 29, on the heels of estimate boosts in the last 60 days from $2.50 to $2.83 for this year, and from $2.90 to $3.54 for 2012.

Allegheny Technologies (NYSE:ATI): Zacks #1 Rank since April 29, based on analysts upping their EPS projections in the last 60 days from $3.00 to $3.17 for this year, and from $4.24 to $4.85 for 2012.

Citic Pacific (CTPCY.PK): Zacks #1 Rank since May 26, after upward estimate revisions in the last 30 days took this year from $1.20 to $1.44 EPS and next year from $1.44 to $1.73.

Two Caveats for #1 Steel Stocks

Before you rush into buying any of these names, let me highlight two areas for further research. First, the Zacks Rank is designed to be a short-term timing indicator, alerting you to high-probability upside in stocks with upward earnings estimate revisions in the last 60 days.

A few of these picks are getting "long in the tooth" and could get knocked out of the #1 Rank if better stocks with new upward revisions come along since we only focus on analyst estimates for the last 60 days.

Second, milder economic data in the past two months has definitely tilted the stock market downward as the "path of least resistance," especially in a seasonally weak time of year. I wrote about this on May 31 when the S&P 500 was at 1,345.

And if we needed confirmation that this slowdown could get more serious, yesterday's surprisingly weak Empire State Manufacturing Survey provided a wincing blow. As Steve Reitmeister wrote in his daily market comment for Zacks Premium Subscribers this morning:

"The -7.8 reading is only the second negative reading in 2 years. The last time was a little blip in November before jumping back into positive territory. Is it the same this time around or does it portend ill for the future? Add into the mix Greek riots and, voila, we are back under Dow 12,000 once again."

The bottom line is that steel stocks are experiencing a strong earnings recovery as the global economy continues the cyclical expansion on the back of emerging markets growth. Keep your eye on these names and their Zacks Rank as you may want to buy them at a nice discount from where many were trading a month ago.