While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of U.S. Steel (X 0.92%), AK Steel (AKS), and Steel Dynamics (STLD -0.22%) all rallied this morning after Goldman Sachs upgraded each of the three steel stocks to "buy".
So what: Along with the upgrades, analyst Sal Tharani planted a price target on U.S. Steel of $30, AK Steel of $6, and Steel Dynamics of $22, representing upside of 16%, 30%, and 19%, respectively, to their Friday closing prices. While the steel sector has been pressured by oversupply issues, Tharani believes that those risks are now priced in and expects the space to rebound over the next several years.
Now what: Goldman believes that U.S. Steel, AK, and Steel Dynamics are in a particularly good position to benefit from its view of recovering demand and declining input costs in the steel sector.
"We upgrade X to Buy from Sell as we are getting constructive on flat steel fundamentals and also see headwind from its cost cutting measures. We upgrade AKS to Buy from Sell as we expect the company to see notable margin expansion in 2015 and beyond as it executes its new iron ore strategy. We upgrade STLD to Buy from Neutral as we believe that benefits of non-res recovery are not priced into the stock," noted Goldman.
So while I'd expect the cyclical steel sector to remain highly volatile, Goldman's bullish long-term view of the space certainly sounds enticing.
