Institutional Confidence in Gerdau (GGB) Amid Market Volatility: A Defensive Industrial Play with Growing Yield and Improving Fundamentals

In a market characterized by macroeconomic uncertainty and sector-specific headwinds, Gerdau S.A. (NYSE: GGB) has emerged as a compelling defensive industrial play. The Brazilian steel producer's recent institutional activity, dividend resilience, and operational efficiency metrics position it as a rare combination of stability and growth potential in a cyclical industry. With LGT Group Foundation's new position and a broader institutional buying trend, Gerdau's value proposition is gaining traction among long-term investors.

Institutional Confidence: A Barometer of Long-Term Optimism

The first quarter of 2025 saw a surge in institutional interest in Gerdau, led by LGT Group Foundation's strategic acquisition of 124,590 shares ($354,000) and a broader cohort of investors increasing their stakes. Quantbot Technologies LP added $1.28 million in shares, while Abacus Wealth Partners LLC, Invesco Ltd., and Virtus Family Office LLC all raised their holdings by 16.8% to 3.1%. These moves signal confidence in Gerdau's ability to navigate market volatility through its diversified geographic footprint and disciplined capital allocation.

Notably, UBS AM and Bank of America Corp DE increased their stakes by 821.1% and 130.6%, respectively, reflecting algorithmic and strategic bets on the company's financial resilience. Even as some institutions like Goldman Sachs reduced their positions, the net institutional ownership in Gerdau rose to 1.49% of the float, underscoring a growing consensus on its long-term potential.

Dividend Resilience: A Defensive Edge in a Cyclical Sector

Gerdau's dividend history demonstrates its commitment to shareholder returns despite industry volatility. While the company adjusted its payouts in 2024 and 2025—dropping to R$0.12 per share in Q1 2025 before rebounding to R$0.30 in Q3—the current yield of 4.76% remains attractive. This yield outperforms the bottom 25% of Brazilian dividend payers (3.09%) and aligns with the metals and mining sector average (9.2%).

The sustainability of Gerdau's dividend is supported by a cash payout ratio of 47.7% and a payout ratio of 40.1%, ensuring earnings comfortably cover distributions. This resilience is further bolstered by a debt-to-equity ratio of 0.29 and a strong operating cash flow to net income ratio of 3.3, which highlight the company's financial flexibility.

Operational Efficiency: Driving EBITDA Growth and Sustainability

Gerdau's operational improvements have been a cornerstone of its recent performance. In Q2 2025, the company reported adjusted EBITDA of BRL 2.6 billion, a 6.6% increase from Q1 and 14% year-over-year growth in net income. North American operations, which account for 61% of consolidated EBITDA, have been a key driver, benefiting from favorable market conditions and strategic product mix adjustments.

The company's sustainability initiatives further enhance its competitive edge. Gerdau achieved an average greenhouse gas emission rate of 0.85 tonnes of CO2 per tonne of steel in 2025—well below the global average—and is on track to add 5.5 million tonnes of high-quality iron ore annually through its Miguel Burnier project. These efforts not only align with global decarbonization trends but also reduce long-term operational costs.

Valuation and Market Position: Undervalued Potential

Gerdau's valuation metrics suggest it is undervalued relative to its fundamentals. The stock trades at a P/E ratio of 10.6, below the industry average of 6.36, and a negative PEG ratio of -0.21, indicating strong earnings growth potential. Its beta of 0.96 also suggests lower volatility than the market, making it a defensive play in a high-risk environment.

Institutional investors appear to recognize this potential. The collective 1.49% ownership stake by institutions, coupled with a total shareholder yield of 10.9% (combining dividends and buybacks), positions Gerdau as a rare industrial stock with both income and capital appreciation potential.

Investment Thesis: A Defensive Play with Upside

For income-focused investors, Gerdau's 4.76% yield and sustainable payout ratios offer a reliable income stream. For growth-oriented investors, its operational efficiency, geographic diversification, and institutional backing provide a foundation for long-term appreciation. The recent institutional buying spree, led by LGT Group and UBS, signals confidence in Gerdau's ability to outperform in a volatile market.

However, risks remain. The steel industry is cyclical, and Gerdau's exposure to Brazil's economic challenges—such as import penetration—could pressure margins. That said, the company's North American expansion and sustainability initiatives mitigate these risks.

Conclusion: A Strategic Buy for Long-Term Portfolios

Gerdau's combination of dividend resilience, operational efficiency, and institutional confidence makes it a compelling addition to long-term portfolios. With a growing yield, improving fundamentals, and a valuation that reflects undervaluation, GGB offers a rare blend of defensive qualities and growth potential. As institutional investors continue to build positions, Gerdau is well-positioned to deliver consistent returns in an uncertain market.