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DJ Goldman Sachs Raises This Metal Stock to Buy, Adds to Conviction List -- Barron's Blog
28/06/2017 11:56AM AEST

By Robert Guy
Goldman Sachs has upgraded Australia's Sims Metal Management ( SGM.AU) to buy and added the stock to its Australia and New Zealand conviction list.
Sims is the biggest scrap metal processor in the U.S. and the brokerage reckons it's well placed to profit from rising demand for ferrous scrap and could deliver a five-fold increase in earnings before interest and tax (EBIT) over three years.
Goldman Sachs also notes the fall in Chinese steel exports is driving a recovery in production from electric arc furnaces (EAF) - which use scrap metal as an input to make steel - and that has driven a 20% increase so far this year in U.S. scrap exports.
Here's why Goldman Sachs is so bullish:

The sustained demand-led recovery bodes very well for SGM as we look forward, with both asset utilisation and operating earning margins benefiting from: (i) the resurgence in US ferrous scrap exports led by the recovery in global EAF production; (ii) the strong operating leverage following 3 years of restructuring; and (iii) the pending benefits from internal initiatives.

The broker has a price target of AUD16.70 a share, which implies 19% upside. The stock is up 20% so far this year.

More at Barron's Asia Stocks to Watch blog, http://www.barrons.com/asia-stocks-to-watch