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Bull of the Day: U.S. Steel Corp (X)

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When new tariffs were announced on imported steel and aluminum in March by the Trump administration, the stocks of U.S. producers, including U.S. Steel (X - Free Report) , rallied sharply, buoyed by expectations for higher prices for finished products and consequently, higher earnings.

The rally was short lived however, as the next month brought widespread fears of retaliatory actions by our trading partners and even the prospect of an all-out trade war.  Investors definitely “sold the news” in materials companies.

U.S. Steel’s stock price peaked at a high of $46.01 in early March but has slid nearly 25% during the “trade-war” selloff and now trades around $36.

With trade relations softening this week between the U.S. and China and expectations for a trade-war on the back burner, investors have the opportunity to purchase this Zacks Rank #1 (Strong Buy) stock at pre-runup prices, taking advantage of its strong earnings outlook at an attractive valuation.

An American Giant

U.S. Steel, originally founded by Andrew Carnegie and purchased by J.P Morgan in 1901, has been a titan of U.S. industry for a century and a half. At one point early in the 20th century, they were responsible for 2/3 of steel production.  The 1980s brought hard times as U.S. Steel unsuccessfully sought to diversify into other industries. They subsequently divested themselves of these non-core assets. After a strong run in the early 2000s, U.S. Steel once again fell on hard times as the company faced stiff foreign competition and falling prices for its finished products.

Back on track again, U.S Steel is has refocused efforts on its core business of providing sheet and tubular steel products to a wide variety of industries, including automakers, construction, industrial equipment and oil and gas companies.  

Praising the current administration for the imposition of new tariffs, they recently announced the reopening of the long-shuttered Granite City Integrated plant in Illinois, adding significant capacity and at least 500 jobs.

Sales on the Upswing

U.S. Steel has posted a revenue surprise in each of the last three quarters and as you can see from the chart below, the stock has performed well in the wake of each of these announcements.

Sales estimates for both the next quarter and 2018 are both up 10% versus comparable periods a year ago at $3.45B and $13.48B, respectively.

Earnings Estimates Soaring

Not surprisingly given the increases in sales, earnings at U.S. Steel have been rising steadily and analyst expectations are for the trend to continue.  After earning $1.94/share in 2017, the Zacks consensus estimate for 2018 had been $3.21/share at the beginning of the year, but after a slew of upgrades lately, it now stands at $5.00/share, a whopping 56% increase in just the last 90 days.


Thanks to the recent selloff and growing earnings forecasts, U.S. Steel now trades at a forward P/E of just 6.9X as compared to an industry average of 11.6X.   Close competitor Nucor (NUE - Free Report) , also a Zacks Rank #1(Strong Buy), trades at a forward P/E of 10.9X.  The current price of U.S. steel represents an opportunity to pick up a fast-growing industry leader at a discount price.  Use the recent price slide to make steel the backbone of your portfolio.

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