In a cascading wave of negative impact, the novel coronavirus battered the American economy and wreaked havoc on the steel industry, in particular. One undeniable victim of this fiscal domino effect was United States Steel (NYSE:X), commonly known as U.S. Steel. As a result, X stockholders have struggled to get back to the break-even point this year.
Investing profitably in U.S. Steel isn’t an easy task. The stock is volatile and the steel market involves a fragile balance among competing and sometimes unfriendly nations. Basically, you’ll need to understand both the stock and commodities markets to navigate X stock successfully.
And, you’ll need to be on the lookout for red flags. In the case of U.S. Steel, a gigantic red flag, coming from the company itself, was recently waved in our faces. Hopefully, prospective shareholders will heed the warning and refrain from making an ill-advised investment in X stock.
A Closer Look at X Stock
If history is to be our guide, then let X stock be a lesson in avoiding assets that have gone up in value too much, too fast. This stock ascended from less than $10 in 2003 to more than $180 in the summer of 2008. Less than a year later, the share price was under $20.
Today, X stock is struggling to hold on to the $7 level. It’s not necessarily all the company’s fault as the global steel industry is roiled by a complex matrix of fiscal and political factors. Still, the long-term price descent in the stock should make investors wary.
Even in the short term, investors in U.S. Steel have had difficulty holding on to their gains. For instance, the stock popped in mid June due to a catalyst which we will discuss in a moment. That gain was relinquished within a couple of days, however, and a persistent drawdown ensued over the following weeks.
A Rare, Fleeting Hope
It’s not every day that X stockholders are given the gift of hope, but that’s exactly what took place on June 16. On that warm summer day, the White House announced that it was considering a $1 trillion federal infrastructure proposal.
Steel, of course, is an elemental part of American infrastructure, so X stock jumped 10% or so on this hope-filled day. Social-media pundits crowed and X shareholders celebrated the beginning of the end of their troubles.
As we now know in hindsight, the festivities were, sadly, short lived. X stock resumed its typical course of downward price action with intermittent green days.
Within a few weeks, the hype was all but forgotten and everything was back to normal, which is to say that U.S. Steel investors were back to their usual regimen of hoping for a recovery that never comes.
Management Sends a Clear, Awful Message
With the hope train having passed them by, X investors are left clinging to data that offer scant encouragement. For example, U.S. Steel reported a dismal first-quarter net loss of $391 million along with an adjusted net loss of $123 million.
Broader steel-market data doesn’t provide much solace, either. The World Steel Association, unfortunately, expects steel demand in the U.S. to decline by 22.9% this year. Moreover, the American Iron and Steel Institute reports that the capacity utilization rate, a key steel-industry indicator, recently fell to 54.6%. As a point of reference, that figure had been 80.1% a year earlier.
And finally, the kicker: U.S. Steel recently forecast a staggering Q2 loss of $315 million. That’s far worse than Wall Street’s consensus expectation of an already-alarming $135 million quarterly loss.
Is this the company’s way of warning long-side traders to steer clear of the stock until the steel market improves? Probably not, but the numbers still don’t add up to a firm bull case for X stock in 2020.
Bottom Line on U.S. Steel Stock
With or without the company’s rock-bottom forward guidance, it’s hard to justify a position in U.S. Steel stock now. For the time being, let the data be your guide and find another, less troubled company to which to apportion your hard-earned capital.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.