One of the benefits that people foresaw of President Trump’s administration was the return of legacy industries like steel. When the President first started talking tough against China, companies like U.S. Steel Group (NYSE:X) experienced a surge in value. However, the burst in X stock and similar names was short-lived.
Trump launched the first salvo of tariffs on Chinese goods in late January 2018. Initially, the thesis for U.S. Steel stock appeared ironclad. Finally, we had a President willing to stand up to shady Chinese business practices, such as commodities dumping. With an administration that didn’t give two cents about political correctness, X stakeholders rejoiced.
Unfortunately, economic dynamics, especially in the modern era, do not occur individually in a vacuum. What affects one sector will likely impact another, often with unpredictable results. While Trump won voters in blue-collar, conservative states with his tough talk, his policies didn’t work as he previously hoped.
X Stock Meets Reality
Certainly, the idea of tariffs and dumping-crackdowns rejuvenated X stock. They also lifted industrial-commodities players like Alcoa (NYSE:AA) and Steel Dynamics (NASDAQ:STLD), which benefited from rising steel prices.
That said, those rising prices hurt industrial consumers of steel and aluminum, such as General Motors (NYSE:GM). The double-whammy, of course, was that many of these sectors and companies couldn’t afford the sudden hit to margins. For instance, GM and Ford (NYSE:F) already have problems selling cars in America.
Passing the costs to consumers who don’t already buy American? This just wasn’t going to fly. Thus, U.S. Steel stock received a boost from surface-level trading. But once reality set in, the Trump-tariff fundamentals didn’t look too hot.
But with X stock down more than 55% since the start of 2017 — despite last Friday’s double-digit swing up — is it time to go contrarian?
The Bull Case for U.S. Steel Stock
For those willing to go against the grain, it’s not just X stock that has looked interesting recently. From a technical standpoint, Alcoa appears to have hit bottom. So too have Steel Dynamics shares.
Naysayers will immediately counter and state that it’s unwise to chase a company down. Over the last several years, we’ve seen many high-profile names that offered contrarian cases, only to disappoint further. What then makes U.S. Steel stock any different?
Fundamentally, the underlying firm still represents a viable industry. True, we’re moving deeper into the information age. Nowadays, the sexiest companies are those that lead in automation and artificial intelligence. I’m not shocking anyone with that statement.
Still, we have robust demand for actualizing those innovations. For instance, the robots that build our cars aren’t going to build themselves. More importantly, some of the implications behind the latest tech innovations won’t occur until much later down the line.
At some point, AI will replace human drivers altogether. But that may not happen in our lifetime. Therefore, automakers are still competing with each other for consumer dollars, invariably lifting X stock.
This underappreciated demand for commodities-based products helped buoy sector players from completely imploding. Even during the early stages of geopolitical tensions between the U.S. and China, aluminum demand remained healthy. At some point, you got to like your chances that U.S. Steel stock will make a comeback.
Trump Is a Wildcard
With all that said, I understand the hesitation toward X stock. Admittedly, the steel and aluminum markets need some help. President Trump, as well-intentioned as he may be, isn’t helping.
When he made good on his tariff threats, many conservatives lauded his efforts in sticking up for blue-collar Americans. But as the markets and the hard data indicate, those moves didn’t pan out so well. Partially due to these pressures, Trump agreed to negotiate with his Chinese counterparts.
Now, the volatile President has seemingly changed his mind. In a stunning about-face, he threatened to renew tariffs on China, shocking just about everybody. I believe this is the reason why U.S. Steel stock failed to build off last Friday’s spike rally. Steel companies have seen where “protective” tariffs lead.
However, I think we can discount this outburst as another presidential episode. With the 2020 elections coming up, Trump can’t afford to actualize “the crazy.” He knows as well as anyone that the way to win the American voter is through their wallet.
In other words, Trump has every incentive to truly act in the blue-collar worker’s best interest. And with that backdrop, you can trust X stock a lot more than other speculative names.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
