Things are tough in the Rust Belt these days. United States Steel said Wednesday it is temporarily shutting two blast furnaces in the U.S., while earlier in the week, Nucor and Steel Dynamics issued forecasts for the second quarter that were gloomier than Wall Street expected.

Yet anyone who though steel stocks would fall has been proven wrong. U.S. Steel (ticker: X) was up more than 6% near midday, while gains in Nucor (NUE) and Steel Dynamics (STLD) Wednesday morning left those stocks up 4.3% and 11.2%, respectively, for the week. The Dow Jones Industrial Average was up only 1.6%.

Investors seem to believe it can’t get much worse for the steel business. Maybe the recent price action is a sign that it is time to look again at this deeply cyclical sector.

The key reason for the counterintuitive moves is the stocks’ starting valuations. Steel stocks are down 40% on average over the past year, far worse than the 10% gain of the Dow. The steel sector now trades for about 1.2 times the companies’ tangible assets, lower than historical averages and only about 10% higher than the lowest level in the past 10 years, Barron’s calculations show.

It wasn’t supposed to be this hard for steel producers in 2019. Steel prices should have rallied after a mining disaster in Brazil took iron ore—a key raw material for steel—off the market. (Benchmark iron-ore prices are up 72% year to date.)

Tariffs on foreign steel should have also boosted prices because the U.S. is a big importer on a net basis. But some of those tariffs, on Canada, Mexico and Turkey, have been eliminated or reduced. Weak steel demand, due to factors such as falling automotive production, has scuttled hopes for better prices.

Investors aren’t only worried about the near term. They are also concerned that low-cost producers like Steel Dynamics and Nucor, which make steel by melting down scrap metal, are adding capacity to the U.S. market, threatening to upset the supply-demand balance.

Scrap-based producers have been taking market share from traditional blast-furnace-based mills for a generation. Management at those companies say it makes sense for them to expand because they can make acceptable returns on invested capital at current steel prices, even as other producers struggle.

Barron’s wrote positively about the sector in March, believing that steel prices would rally as the cost of iron ore rose. Steel hasn’t taken off, but the sector still looks too cheap to us. It is possible the deteriorating outlook for steel demand could delay any decisions to add capacity. Less growth than expected in the supply of steel would be a nice catalyst for the stocks.

Steel Dynamics didn’t immediately respond to a request for comment. But Nucor said it has no plans to delay any expansion projects.

“All of our investments are done as part of our long-term strategy for profitable growth,” said a company representative. “The steel industry is highly cyclical and because investments like the ones we are making last decades, they are evaluated to ensure that they will earn returns in both up and down markets.”

Of course, thesis creep—a Wall Street term for changing the reason for an investment while holding a stock—is dangerous, but we believe there is still value in steel, especially in low-cost producers like Nucor and Steel Dynamic.

Wall Street agrees. The average rating on Nucor and Steel Dynamics is a Buy. The average price targets on the stocks imply gains of 8% and 16%, respectively.

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