What: Steel Dynamics' (STLD 1.30%) stock price rose an impressive 24% last month. That brings the year-to-date gain to nearly 29%. So it's been a good few months for this steel mill.
So what: The thing is, Steel Dynamics hasn't seen as big a benefit as some of its peers, like U.S. Steel, whose stock is up over 100% so far in 2016. In fact, after a key trade case win in which China got hit with tariffs of 265% on flat rolled steel, Steel Dynamics inched higher compared with a massive leap for U.S. Steel. Steel Dynamics has demonstrated the same relatively muted response to generally rising steel prices -- relatively speaking, since a year-to-date gain of around 30% is pretty impressive, given that it's only April.
What all of this speaks to, however, is Steel Dynamics' strong industry position. This steel player uses more modern electric arc furnace technology. It's cheaper to run than older blast furnaces, which provide the backbone for companies such as U.S. Steel. This situation helps explain why Steel Dynamics has, despite the moribund steel market, lost money in only two years over the past 10. U.S. Steel, for comparison, has bled red ink in six of the past 10 years. Note, too, that Steel Dynamics' finances are in better shape, providing another reason why rising steel prices boosted investor appetite for the shares just so much compared with more heavily indebted peers -- such as U.S. Steel.
Now what: The turnaround potential for Steel Dynamics is not as great as it is at U.S. Steel. The stock-price moves last month and so far this year demonstrate that pretty clearly. But the risk profiles of the two companies are vastly different. If you're looking for a long-term steel holding, Steel Dynamics has put up good numbers even during a bad market. If you're looking to get the biggest bang for the buck from a recovering steel market, higher-risk U.S. Steel might be more to your liking. But for conservative investors, Steel Dynamics is probably the better option.