Why United States Steel Corporation Is a Steal At This Point

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X stock - Why United States Steel Corporation Is a Steal At This Point

Source: Dayne Topkin Via Unsplash

Shares of United States Steel Corporation (NYSE:X) have certainly been on a roller coaster ride lately. After initially ripping higher on proposed steel and aluminum tariffs by the Trump administration, X stock has now given up all of those gains and more.

While certainly the initial Trump Tariff tirade was overdone to the upside, the subsequent drubbing is now decidedly overdone to the downside. I expect United States Steel to head higher over the coming weeks.

Already Canada, Mexico and Australia have been exempted from the steel and aluminum tariffs, leaving China and the E.U. as the main tariff targets. Although the effectiveness of the tariffs has diminished, it will still undoubtedly have some effect. While the tariff machinations have become the the immediate focus for steel stocks, over the long run, earnings and valuations drive stocks.

Important to remember that United States Steel soundly beat expectations last quarter with earnings-per-share of 76 cents handily exceeding analysts estimates of just 68 cents. The company also provided earnings guidance for 2018 of $3.88-per-share. This places the forward price-to-earnings multiple below 10 with X stock currently at $38.43 ($3.88/$38.43), making U.S Steel a definite value at current levels.


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As seen in the chart, X stock is now priced lower than it was before any tariffs were announced. Shares had fallen for five straight days (and 15%!!) before finally finding support yesterday.

U.S. Steel has also become oversold  on a 9 day RSI basis with readings below 30. The previous instances when RSI was at such pessimistic levels proved to be significant intermediate-term lows in X stock. MACD is also at the most extreme level over the past 18 months, another reliable harbinger of a likely bottom.

Even with the recent increased overall stock volatility, implied volatility (IV) in X options is only at the 17th percentile — cheap on an absolute basis and also at a big discount in comparison to the historic volatility of 45%.

This favors option buying strategies in trade structuring, making a long call trade a simple, but effective way to play.

X Stock Trade Idea

Buy to open X April $41 calls at $1.05

Each option contract costs only $105. A move back towards the $43 level over the coming month would be a doubler for these calls.

Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility/.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


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