Is United States Steel Corporation (X) Stock Worth the Risk?

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If any company represents the hopes of the Trump economy it’s United States Steel Corporation (NYSE:X). U.S. Steel is precisely the kind of company Trump wants to see grow. It makes the most elemental of products, and it makes them in the U.S.

Is United States Steel Corporation (X) Stock Worth the Risk?

Over the last five years, X has been making less-and-less of this product each year. Revenue has fallen from $17.2 billion in 2013 to $10.26 billion in 2016.

The company has not been able to downsize quickly enough to turn a profit. There were $2.81 per share of losses in 2016 for X stock, another $1.03 in losses for the first quarter.

For the quarter ending in June, due to be reported after the market closes July 25, the consensus view is a profit of 46 cents per share and revenue of $2.9 billion, both representing solid growth for U.S. Steel. But there’s a “whisper number” of just 30 cents per share of earnings — analysts are quietly talking X stock down.

The Bull Case for U.S. Steel

During 2017, X stock has behaved like Trump’s approval ratings. It didn’t start out that hot and it has just become worse: X shares are down 28% this year.

The administration’s response is to start a trade war, a “Section 232” review of the industry under a 1962 law allowing tariffs and quotas on imports that threaten national security. This is upsetting not only Japan and China, but also many U.S. executives, who fear higher costs if tariffs go into effect, and corresponding pressure on their exports.

Both U.S. Steel and its unions support the tariffs, with former X CEO Mario Longhi predicting it could add 10,000 new jobs.

The possibility of government support has bulls like our Nicolas Chahine pounding the table for X stock, believing it can retrace some of its post-election rally that fizzled in 2017’s market reality. A technical base has been built, and the gap of a sudden fall in April could be filled.

He’s not alone. The U.S. Steel’s market cap of $4.06 billion represents just 40% of the company’s annual $10.2 billion in revenue. Most steel companies trade at a par with revenues. If X stock can just trade at par with its revenues, it will soar.

The Bear Case for U.S. Steel

X delivered a huge disappointment in its first-quarter report, and as the earnings whispers indicate, it may be poised for more. The company is on a four-year plan of “asset revitalization,” $300 million in 2017 investment meant to improve profitability.

But putting money into a steel mill means shutting it for a time. Shipments of flat-rolled steel will be down, just as the Administration’s tariffs go into effect. U.S. manufacturers are going to be impacted, and the Chinese are not the only trading partners who are spitting mad.

European Union officials look set to initiate their own safeguard actions, and protest to the World Trade Organization. The last time this happened, in 2002, the U.S. eventually backed off its protectionist policies.

Bottom Line on X Stock

You are not going to trade U.S. Steel on its fundamentals this month, even if the earnings disappoint. The company has become enmeshed in global politics, the wedge of a Trump trade war that, from here, looks likely to work about as well as his efforts to repeal Obamacare.

U.S. Steel’s cost-cutting efforts offer an excuse to back off the harsh rhetoric, but that’s not the way Trump works. What’s happening in steel could be the start of a process that puts the whole global trade apparatus at risk, with no possibility of a corresponding reward. It’s stupid.

X is with stupid.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/united-states-steel-corporation-x-stock-worth-risk/.

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