United States Steel Corp. (X)
Over the weekend I had a chance to watch some professional football. With my team not playing, I took the opportunity to view a game featuring one of the most storied franchises in sports history, the Pittsburgh Steelers.
As a fan of the Minnesota Vikings, the Steelers were a hated rival. That being said you had to admire the Steel Curtain. They truly exuded strength befitting of their name.
For those living in the rust belt, steel is as American as apple pie. Much of our industrial complex was built on steel and even though the industry suffered a decline during the late 1970’s and early 1980’s, the sector was enjoying a huge renaissance of late.
That renaissance was produced by the growth of lesser developed countries like China across the globe. Demand skyrocketed and steel companies enjoyed the fruits. In fact, the leader of the last bull market that began in 2003 was the steel industry.
These were heady days for the group and stocks across the board generated huge gains. One of the biggest players in the space, United States Steel Corp. (X) moved from $20 to nearly $200 in value.
Hedge funds played a key role in the increase as big bets were made on material stocks moving in concert with global demand. The idea was that materials being in short supply would see huge price increases.
Prices did increase, but as we know now the industry was not immune to the business cycle. Fears of a slowing economy began to emerge earlier this year, but steel stocks continued to rise until July.
At that time the bottom dropped out and steel stocks, including X dropped like a rock. The credit crisis accelerated the fall. The speed and rate of the decline caught hedge funds off guard.
Those that used leverage on the way up were forced to sell now that prices had collapsed. Over the last month the moves in steel stocks separated from reality. X bottomed out below $30 at $28.43.
This makes no sense, especially in the context of today’s news from the company. Earnings beat estimates by a wide margin as the company enjoyed the benefits of high prices and strong demand.
To be fair the company did state that it expected results to be impacted by a slowing economy. That may be true, but I think there is great opportunity in stocks like X.
Eventually the economies around the world will recover. X is currently trading for 3 times earnings. Such a state assumes that a recession of great depth and length will negatively impact the company.
I don’t buy it. Steel stocks are at the top of my wish list of stocks to buy for the next bull rally. Don’t miss this opportunity to buy X at a big discount.
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This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
