Steel stocks are surging.
The VanEck Vectors Steel ETF (SLX) hit its highest level since November 2018 on Friday as hopes around an economic recovery and infrastructure spending under President-elect Joe Biden fueled the trade.
The SLX also notched its fifth straight weekly gain for the first time since February 2019 on Friday, with eight of its components hitting new 52-week highs.
The group is too hot to chase, however, said Blue Line Capital's Bill Baruch, noting that the SLX is up nearly 29% since Pfizer and BioNTech first announced the positive data from their Covid-19 vaccine on Nov. 9.
"There is room still to the upside, but I wouldn't be chasing any names at this point," the firm's founder and president told CNBC's "Trading Nation" on Friday.
"The markets have already moved," he said. "But don't get me wrong — there still is room to move. I think the SLX can get to $50."
The SLX closed at $43.84 on Friday, up almost 5%. A $50 target implies roughly 14% upside.
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Baruch's longer-term bull case had less to do with Biden's plans for the steel industry — which will, in part, encourage U.S. companies to "Buy American" — and more to do with overseas competition.
"[In] President Trump's trade war with China, one of the big targets was steel and the dumping that China has done," Baruch said. "China, with over 50% of the world's steel production, is big competition to the U.S. ... That narrative, the trade war, has suppressed the exports of China and we're at new lows. This has been a tail wind to the U.S. names and ex-China names."
In short, there will be buying opportunities, "but not at this point," according to Baruch.
"I think the tail winds are there, and if you're not in it right now, you don't want to be chasing this stuff," he said. "But there [are] going to be some opportunities, I think, through the middle part of next year. ... This is a big tail wind of a breakout from a trend line from 2018."
China's strength in the steel industry is not to be discounted, however, said Gina Sanchez, founder and CEO of Chantico Global and chief market strategist at Lido Advisors.
"Chinese production for steel is already up to an all-time high, and it's going to take the rest of the world to catch up to that," she said in the same "Trading Nation" interview. "That is really going to be predicated on the reopening, how quickly we can get back to normal activity."
Conversely, Biden's plan should boost domestic plays such as U.S. Steel and "the various ETFs that have U.S. steel components," which "still have quite a bit of catching up to do compared to China," Sanchez said.
"As the economy opens up, we're seeing demand across all the industrial metals, not just steel. We're also seeing demand back for oil coming back up," she said. "All of these are reopening trades, and we're going to have to watch the reopening carefully because there may be issues with the vaccine production. There's lots of things between now and then that could change that. We could open more quickly. We could open more slowly. But this is definitely tied to that."
