After touching $32 in February, shares of United States Steel Corporation (NYSE:X) were over $45 just a few weeks later. Then, back down to $32 we went. To say it has been a volatile year so far would be an understatement. But based on how the charts look right now, those big price swings are pointing to a big potential breakout in X stock.
Let’s take a look at the trade before we look at the company more closely.
Trading X Stock
X stock has had a big range so far this year, but one level has become remarkably clear: $38.
Through the first few months of the year, $38 served as support for X stock. In the following few months, it has been resistance. With U.S. Steel putting in a series of higher lows and slowly grinding up toward that level, investors now find themselves at a make-or-break level.
X stock will either breakthrough $38 and potentially kickstart a big rally, or it will see trend-line support give way and the setup will fail. Should the latter happen, X stock will need to close below $37 and if trend-line support is no longer in play, a drop back into the mid-$30s is likely in play. A breakout over $38 and X stock likely heads into the low-$40s in the short-term. That’s assuming shares not only breakout over $38 but also stay above $38.
The 50-day moving average has been a solid proxy of resistance since March. It’s also worth noting that this mark previously served as resistance. X stock is finally over that level, which is currently at $37.31.
Bulls would fancy to argue that this bodes well for the stock, as it’s one key resistance level that’s out of the way and may possibly even act as support going forward.
Sizing Up Steel
It’s not just X stock that has been looking better though. A number of its peers have been showing a bit more color as well.
Nucor Corporation (NYSE:NUE) has been slowly but surely trending higher and it is flirting with a breakout of its own. AK Steel Holding Corporation (NYSE:AKS) is looking like it wants to “go” too, although admittedly that has some higher hurdles of resistance in its way. Cleveland-Cliffs Inc (NYSE:CLF) seems like it wants to break to new 2018 highs and Steel Dynamics, Inc. (NASDAQ:STLD) is consolidating nicely above its prior 2018 highs.
All in all, I wouldn’t say that X stock is an anomaly, but rather right in line with a number of its peers. Should the rhetoric around the steel industry remain bullish, it’s likely these names will begin to breakout. After all, with so many sitting on the cusp, it bodes well for X stock if a few of its friends start to trigger breakouts and/or new highs too.
The key risk here obviously sits with global trade. Steel and aluminum has been a focal point for the White House and its negotiations with other countries. Changes in these current policies or a shift in the outlook could have an overnight impact on steel stocks.
This headline risk is one thing investors should know about going into these names and avoid them if it’s not something they’re comfortable with.
Valuing United States Steel Corporation
Analysts currently expect U.S. Steel to earn $5.07-per-share in fiscal 2018. That values X stock at just 7.4 times this year’s earnings. Of course, top- and bottom-line volatility generally make for a lower valuation. But still, it’s comforting for bulls to know they’re not drastically overpaying for X stock at current prices. That very well could aid in the potential breakout.
For 2019, analysts are looking for earnings to grow about 6% to $5.37-per-share. On the revenue front, estimates call for 13.5% growth this year and 4.8% growth in 2019. Clearly there is a drop-off in earnings and sales growth next year. While it’s not a contraction at least, the silver lining here is that earnings growth should outpace sales growth. This should benefit margins.
At the very least, X stock is far from expensive and should that push bulls’ confidence higher, we could get a breakout in the name.