AKS Stock, X Stock: Still Time Left To Play the Steel Surge?

Advertisement

The huge run in steel stocks has certainly caught many investors and Wall Street analysts off guard. Since early June, U.S. Steel (X) and AK Steel (AKS) have clocked gains of more than 70%. It shows just how rapid a move can be when cyclical stocks are in the bull mode.

us steel, ak steel, x stock, aks stockSo is there more opportunity here for investors, or is the party already over?

Actually, investors can probably still snag some nice returns, at least for the short-term.

Granted, both U.S. Steel and AK Steel have been some of the worst performers since the financial crisis. X stock is down 78% and AKS stock is off by 84%, even after the recent big moves.

Yet the timing looks spot-on for a rebound. After all, U.S. Steel and AK Steel have already taken the painful measures to cut back on headcount and close plants. The same has been the case for all other steel operators, of course. The result is that the supply-demand situation is much more attractive, allowing for better pricing. More importantly, this will last for a few years because the capital costs for adding new capacity is significant.

This positive trend is already apparent in the latest earnings announcements. In the case of U.S. Steel, the company posted a solid second-quarter performance, with adjusted earnings of 17 cents per share, while Wall Street was expecting a loss of 33 cents per share. While U.S. Steel benefited from continue cost cutting, there was also a nice improvement in pricing. In fact, all parts of the company’s business demonstrated strength.

And yes, AK Steel also had an impressive second-quarter report, with adjusted earnings of 2 cents per share. Wall Street analysts, on the other hand, were forecasting a loss of 4 cents per share. Like U.S Steel stock, AK Steel stock benefited from cost cutting and price improvements.

But going forward, X stock and AKS stock should also get a lift from stronger demand. According to the World Steel Association, global demand is expected to grow by 3.1%. A key driver will likely be the strength of the U.S. economy, which has seen boosts in autos, housing and commercial real estate.

So which of these steel stocks is the better play — X stock or AKS stock? Well, both could post nice returns if the market continues to grow. Actually, the valuations are still reasonable, with X stock currently traded at a forward price-to-earnings ratio of 14 and AKS at a mere 8.

However, AKS stock is the riskier one. The company is the No. 4 steel producer, whereas U.S. Steel holds the No. 1 spot. AK Steel also has a tremendous debt load of $1.9 billion, which compares to a market cap of $1.4 billion. And it only has $55 million in the bank to offset that debt.

Regardless, the fact remains that the dynamics of the steel industry look compelling. As is the case with cyclical stocks, U.S. Steel and AKS Steel could be poised for earnings acceleration, especially if demand remains strong. In other words, both should rack up more gains for investors.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/us-stock-ak-steel/.

©2024 InvestorPlace Media, LLC