US Steel is another one of those infamous, history-making stocks that investors aren't likely to forget any time soon. Amid the robust growth and euphoria of emerging market economies, United States Steel Corporation (NYSE: X) soared first past $100, then $150, then above $196 per share in the summer of 2008, only to come crashing down when the leveraging bubble burst and many momentum traders exited the market.
The onset of the global recession, with its reduced demand for steel, took shares down further, to (incredibly) about $17 per share. Shares have since recovered to the $26-30 range.
The rationale for owning X's shares now? US Steel will likely be a survivor in the consolidating global steel sector with sufficient scale to either produce raw materials or acquire raw material assets. The First Call FY 2009/FY 2010 EPS estimates for X are -$2.91 to $2.31.
Still, both tons shipped and prices per ton are likely to decline through much of 2009, so investors who can tolerate moderate risk should expect a very low return-on-equity from X in 2009. Underscoring: the real gains in X will not occur before late 2009, at the earliest. That said, an above-expectations performance by the global economy in Q2/Q3 will have institutional investors staking claims in X, and it's best to lead or walk in tandem with that pack, hence the cautious Buy rating here.
Stock Analysis: US Steel is a moderate-risk stock. Consider buying a 20% position in X now; then buy another 20% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 40% of your X position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $16.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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