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5 Reasons to Add U.S. Steel (X) Stock to Your Portfolio

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The steel industry is finally back on track after being in a rut for long. The industry’s rebound has been backed by favorable developments on steel trade cases in the recent past and President Donald Trump’s infrastructure spending promises.

Steel stocks got a boost following Trump’s election win in November on expectations of significant infrastructure spending in a Trump administration. The steel industry is expected to be one of the key beneficiaries of Trump's presidency. President Trump's call for $1 trillion of new infrastructure spending is likely to have a beneficial effect on the steel industry given the expected increase in steel consumption. Trump’s aggressive trade policies are also anticipated to provide more protection to the U.S. steel industry.

Affirmative rulings in a number of trade cases have also been a positive catalyst for the U.S. steel industry. Steel imports fell around 15% last year on the back of punitive trade actions that led to levy of tariffs on imports. Steel prices have also rebounded on the back of these trade actions.

One of the stocks in the steel space showing strong prospects is U.S. Steel (X - Free Report) . Based on its  compelling growth prospects and healthy fundamentals we believe U.S. Steel has plenty of upside potential.
 
What Makes U.S. Steel a Solid Pick?

Solid Zacks Rank: U.S. Steel has a Zacks Rank #1 (Strong Buy) and a VGM score of “A”. Here V stands for Value, G for Growth and M for Momentum. U.S. Steel’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

An Outperformer: U.S. Steel has outperformed the Zacks categorized Steel-Producers industry over a year, helped by its strategic actions including sustained efforts to improve its cost structure. The company’s shares have gained around 91.6% over this period, compared with roughly 32.9% gain recorded by the industry.



 

Estimates Going Up: Annual estimates for U.S. Steel have moved north over the past 30 days, reflecting analysts’ confidence on the stock. Over the past month, the Zacks Consensus Estimate for 2017 has increased by around 28% to $3.39 per share. The Zacks Consensus Estimate for 2018 has also moved up 32% over the same timeframe to $3.52.

Strong Growth Prospects: U.S. Steel delivered a positive earnings surprise of a staggering 2,600% in the fourth quarter of 2016. The earnings momentum is expected continue in the first quarter of 2017, as reflected by the company’s projected earnings per share (EPS) growth of 116.7% for the quarter. Moreover, the Zacks Consensus Estimate for 2017 is currently pegged at $3.39, reflecting an expected year-over-year growth of 311.7%. The stock also has a long-term (3-5 years) expected EPS growth rate of roughly 8%.

Healthy Outlook: U.S. Steel, earlier this year, noted that it has entered 2017 with improved market conditions than what it had faced at the onset of 2016. The company said that, if market conditions remain at their current levels, it expects net earnings of around $3.08 per share for 2017. U.S. Steel registered a net loss of $2.81 per share in 2016. Adjusted loss for 2016 was $1.60 per share.

U.S. Steel also expects results for its Flat-Rolled, European and Tubular segments for 2017 to be higher than 2016. U.S. Steel also expects to be cash positive for 2017, mainly due to improved cash from operations.

The company, in its fourth-quarter call, also said that it will focus on improving its assets and operating performance and driving innovation that creates differentiated solutions for its customers.

U.S. Steel is aggressively pursuing actions to improve its cost structure through its “Carnegie Way” program that includes manufacturing process/logistics improvements and savings on selling, general and administrative (SG&A) costs. These efforts delivered $745 million of benefits in 2016. The Carnegie Way program is expected to continue to generate meaningful benefits in 2017.

Other Stocks Worth a Look

Beyond U.S. Steel, investors should also consider other stocks in the space such as Ternium S.A. (TX - Free Report) , ArcelorMittal (MT - Free Report) and Angang Steel Company Limited , all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ternium has an expected long-term growth of roughly 18.4%.

ArcelorMittal has an expected long-term growth of 10.9%.

Angang Steel has an expected earnings growth rate of 45.3% for the current year.

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