3 Steel Stocks Donald Trump Can’t Make Great Again

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steel stocks - 3 Steel Stocks Donald Trump Can’t Make Great Again

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Reaching into his bag of uncanny tricks, Republican presidential candidate Donald Trump will try to “steel” the election from his opponent, Democrat Hillary Clinton. Lately, Trump has pulled neck-and-neck with his bitter rival.

3 Steel Stocks Donald Trump Can't Make Great Again: X, AKS, RS

Undoubtedly, the resurgence of Donald Trump stems in large part from his message of restoring America’s manufacturing base. That blue-collar sentiment appeals to swing-state voters, but will it be enough for the nation’s troubled steel stocks?

The outspoken billionaire is often supported at his rallies by signs declaring, “Make America Work Again!” This resonates strongly in places like Pittsburgh, home to America’s steel manufacturing industry.

Donald Trump has blasted everything from poor trade deals to individual politicians as being accessories to the present economic woes. According to “The Donald,” America has simply forgotten how to win. An influx of confidence and hard-nosed tactics will return even embattled steel stocks back to their former glory.

Donald Trump has a gift for charismatic oration. But as an economist, there are critical details missing.

It’s not that his policies are bad, per say. Historical data post-World War II indicates that Republicans are broadly better for the economy. The issue is that every lever in the economy is a balance. Efforts to improve one sector tend to be less beneficial for another. And for steel stocks, there’s not much that can be done without hurting everyone else.

Yes, the next administration could go after China. Certainly, the Asian powerhouse hasn’t done American steel stocks any favors with its excessive supply. But since Chinese steel tariffs are already imposed by not only the U.S., but other international partners, there’s no meaningful alternative for either Donald Trump or Hillary Clinton to impose. Any further action would be punitive, and thus run the risk of an aggressive response.

Steel stocks will just have to rough it out, regardless of who takes office. Unfortunately, that journey looks to be a long one for these three companies.

Steel Stocks in Trouble: United States Steel Corp. (X)

Steel Stocks in Trouble: United States Steel Corp. (X)

In a prior era, criticism of United States Steel Corporation (NYSE:X) could land you on the House Un-American Activities Committee’s watch list.

Fortunately, we live in a more rational society. Nevertheless, X stock ownership represents a piece of Americana.

Founded in 1901 through the aid of historical figures like J.P. Morgan and Andrew Carnegie, U.S. Steel remains the biggest integrated steel producer in the country. It’s understandable why someone would get defensive about X stock, especially in this election season.

Financial analysis is sometimes an ugly business because you have to occasionally call out a crowd favorite. But it would be a disservice to say that the problems plaguing X stock could be easily solved.

X stock, steel stocks
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Source: Source: JYE Financial, unless otherwise indicated

The harsh reality is that red ink dominates from the top line to the bottom line. The debt is being managed, but is still out of control. Under the Altman Z-score metric, X stock is considered distressed.

Certainly, U.S. Steel has had a good run this year, up 140%. However, shares are forming a bearish head-and-shoulders pattern that started around June. With all the warning signs flashing, the contrarian position is too rich for most people’s blood.

Miracles can happen to steel stocks too, but there’s simply too much pressure on U.S. Steel to be worth the risk.

Steel Stocks in Trouble: AK Steel (AKS)

Steel Stocks in Trouble: AK Steel (AKS)

The markets have been the one place where steel stocks are decisive winners over the past nine months, and AK Steel Holding Corporation (NYSE:AKS) is no exception. Year-to-date, AKS stock is up 118%, making it one of the big comeback stories within the New York Stock Exchange.

The question on investors’ minds is whether that momentum is sustainable or not. And regardless of what any politician says, the forecast doesn’t look so bright.

One of the prevailing topics that came up early in last night’s first presidential debate was job creation. But a better question would have been, what can be done now to help current companies foster employment growth?

AKS, steel stocks
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Source: Source: JYE Financial, unless otherwise indicated

Overshadowed by the company’s meteoric rally this year is the fact that shares are long-term underwater — ask any buyer of AKS stock from ten years ago, if there are still any remaining. And the charts show the same ominous sign displayed by X stock — the dreaded head-and-shoulders formation.

Of course, that shouldn’t be regarded as the final word on AKS. But combined with other factors, I think the technical warnings confirm the fundamental concerns.

Sadly, AKS is among a litany of steel stocks that not even Donald Trump can talk up.

Steel Stocks in Trouble: Reliance Steel & Aluminum (RS)

Steel Stocks in Trouble: Reliance Steel & Aluminum (RS)

Last month, Forbes featured Reliance Steel & Aluminum Co (NYSE:RS) as an “interesting idea,” primarily for its technical reading. According to some gauges, RS stock was considered oversold, and was due for a bullish reversal. The thesis was that sellers will “exhaust” themselves, and a comeback could be imminent.

So far, the prediction for RS stock hasn’t panned out, nor do I think it’s going to for a while.

This isn’t to pick on any particular analysts — we all have our winning and losing days. Rather, this is a great lesson in not relying on any one indicator or metric. Technical analysis can be a wonderful system, but not confirming one tool with another is a recipe for disaster.

True, RS stock is still considered “oversold.” However, that judgment has not always been a consistent predictor of profitable entry points.

RS, steel stocks
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Source: Source: JYE Financial, unless otherwise indicated

In all fairness, RS stock is one of the most stable investments within the steel industry. Yet as President Barack Obama might retort, that’s like putting lipstick on a pig.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/donald-trump-steel-stocks-x-rs-aks/.

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