Steel Stocks Will Build on Construction Gains: Analyst

As construction goes, so will go the steel industry, Wells Fargo analyst Sam Dubinsky told CNBC Tuesday.

Construction is "the most important market for steel" and is "showing signs of life" for the first time since the 2008 recession, he said.

While the current low price of natural gas helps steel companies keep their costs down, the biggest problem they face is oversupply, Dubinsky said.

"If you believe construction is coming back, we think the sector could be headed for cyclical expansion next year because supply headwinds will abate. Construction will sop up that incremental demand," he said.

That should also help steel company stocks.

That's why Dubinsky is "turning more positive on the group for next year," he said.

When will steel prices rise again? When utilization rates are in excess of 80 percent, he said. Currently, utilization is in "the high 70s," thanks to the need for steel in automobiles, equipment, and energy, which he said are near pre-recession levels.

His picks in what he calls an "incredibly volatile" sector? Dubinsky likes Nucor because it has a diverse product line, pays a dividend and is "one of the safer steel names."

He also likes AK Steel, calling it "a turnaround story."

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For Stephen Gengaro
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For Sam Dubinsky
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Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from X
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United States Steel Corporation, AK Steel Holding Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to United States Steel Corporation, AK Steel Holding Corporation.
United States Steel Corporation, Steel Dynamics, Inc., Nucor Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to United States Steel Corporation, Steel Dynamics, Inc., Nucor Corporation.
Steel Dynamics, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided nonsecurities services to Steel Dynamics, Inc.
Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from X
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Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in X
Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in NUE
Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in STLD
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Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from an affiliate of AKS
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CNBC.com with wires.