US Steel (NYSE: X) shares are trading higher after competitor Nucor (NYSE: NUE) raised its earnings outlook for its upcoming second-quarter earnings. The previous forecast of 1.55 to 1.60 was lifted by 20 cents to 1.75 to 1.80. Analysts were looking for 1.69 and an upside surprise by NUE should signal good things for X as well. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on X.
After hitting a one-year low of $74.41 in August, the stock hit a one-year high of $185.55 last month. X opened this morning at $177.00. So far today the stock has hit a low of $175.25 and a high of $182.22. As of 12:55, X is trading at $183.10, up 9.88 (5.7%). The chart for X looks bullish but deteriorating slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $140 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just seven weeks as long as X is above $140 at July expiration. US Steel would have to fall by more than 23% before we would start to lose money. Learn more about this type of trade here.
X hasn't been below $140 since March and has shown support around $170 recently. This trade could be risky if the stock has risen too quickly and has a correction, but even if that happens, this position could be protected by the support the stock might find at $150, where it formed a bottom in May.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in X or NUE.
TheStreet.com's Jim Cramer says that rebuilding from natural disasters can alter the growth picture for a country.
Is it Katrina all over again? Or is it bigger? Much bigger? That's what I am thinking about this Chinese earthquake.
Katrina distorted the U.S.'s growth pattern for more than a full year. The raw materials, the effort, the work, the reconstruction affected businesses from small-scale retail to refining and infrastructure.
We don't really know how China works, although a lot of people tell us they do. To me, the Chinese are always a day away from revolution or civil war and the trick of the government is to stay one step ahead of the posse. (Chinese hands will dispute that, but you have to appreciate that it takes a special skill to be wrong for more than a century and still maintain credibility.)
That means massive reconstruction: bricks, lumber, cement, steel and all the trimmings. Massive imports, not controlled by the Chinese and their little negotiation games like they play with iron and steel and coal. Just full-bore buying and something that could take growth for China back to the levels that everyone thought it couldn't absorb without more inflation.
First, the obvious -- there are too many Coach bags and bags of its ilk, and there isn't enough steel. Second, Coach couldn't pass on a price increase to save its life. Every price increase sticks for US Steel.
Third, on the Coach call where does Lew Frankfort -- who is great! -- want to expand? The U.S. Ouch! Worst market in the world. Saturated. No growth. Feeling poor.
Where does US Steel want to expand? Doesn't matter. The demand is so great it's really an issue of shipping, as CSX's (NYSE: CSX) (Cramer's Take) Michael Ward would tell you -- at least he told me last night on "Mad Money."
This market is tough. Pros and novices alike are having a tough time. Particularly in a down market, a market commentators like to call a ""stock picker's market," I find it illustrative to dig deeper into the holdings of those special professional money managers that have found a way to make a go of it.
Take the CGM Focus (CGMFX) fund. This fund consistently shows up at the top of 1-year, 3-year, and multi-year best performers. CGM Focus has returned on average 37% per year for the past five years. While this is absolutely no guarantee that it will continue to perform like this, fund manager Chuck Heebner seems to have the special sauce -- at least for now.
So, what has been so successful for the fund?
Commodity picks like fertilizer plays Potash (NYSE: POT) and Mosaic (NYSE: MOS) have been big positions and have been big winners. Steel plays like US Steel (NYSE: X) have performed very nicely for CGM as well.
Looking at what worked is somewhat like looking into a rear-view mirror. These gains were in the past. What's Heebner and team buying now?
TheStreet.com's Jim Cramer says U.S. Steel is a puzzle, and he ponders how to play it here.
U.S. Steel (NYSE: X) (Cramer's Take) presents the ultimate conundrum. It is hitting on all cylinders, courtesy of the incredible demand for steel domestically because of pipelines. And it is finally not suffering from dumped imports, because the dumpers are from countries growing so much faster than we are that they need all the steel they can get - China, for example, is struggling to build its own share instead of dumping.
John Surma, the CEO, has taken this once-great company right back to greatness with a rise from $9 to $127 in five years. That defies gravity. He has done that by cutting labor costs and growing the business, he has done it by emphasizing areas he can dominate and cutting ones he can t. And he has done it by taking advantage of the 30 bankruptcies in this sector, leaving him one of the few publicly traded companies left, including Nucor (NYSE: NUE) (Cramer's Take), which is a great company, AK Steel (NYSE: AKS) (Cramer's Take), which levitates all of the time on takeover talk and then DOESN'T come in, and Reliance (NYSE: RS) (Cramer's Take), which is another fave of mine.
US Steel (NYSE: X) closed at $114.54. Soleil says, "We expect a blowout in the second and third quarters, assuming that a strike doesn't occur on September 1, when the company's domestic labor contract with the USWA expires." X April option implied volatility of 65 is above its 26-week average of 52 according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Abbott Lab, Fannie Mae, Freddie Mac and Micromet were today's noteworthy upgrades:
Wachovia upgraded Abbott Lab (NYSE: ABT) to Outperform from Market Perform as they believe their earlier concerns have been addressed. Past concerns included the potential for a negative outcome from the FDA panel on Xience and slowing prescription growth of lead drug Humira.
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were raised to Outperform from Market Perform at Keefe Bruyette citing recent government actions to stabilize the mortgage markets.
Micromet (NASDAQ: MITI) was upgraded at RBC Capital to Outperform from Sector Perform as they expect positive data for its lead candidate, MT103, by year-end.
OTHER UPGRADES:
ThinkEquity raised Atheros Comm (NASDAQ: ATHR) to Buy from Accumulate.
Goldman upgraded US Steel (NYSE: X) to Buy from Neutral.
General Electric (NYSE: GE) was upgraded at Merrill to Buy from Neutral.
After hitting a one-year high of $127.26 in June, the stock hit a one-year low of $74.41 in August. This morning, X opened at $113.50. So far today the stock has hit a low of $108.76 and a high of $113.75. As of 11:20, X is trading at $109.21, down $5.79 (-5.0%). The chart for X looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $140 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in two months as long as X is below $140 at April expiration. US Steel would have to rise by more than 27% before we would start to lose money.
X hasn't been above $130 at all in the past year and has shown resistance around $121 recently. This trade could be risky if the economy picks up and demand for steel rises, but even if that happens, this position could be protected by resistance X might find between $120 and $130, where the stock has topped out twice in the past year.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in X.
3M's adjusted fourth-quarter profit exceeded Wall Street expectations even though earnings fell from year-ago results, which included a one-time gain. Net income was $851 million, or $1.17 per share, compared to $1.18 billion, or $1.57 per share, in the year-ago period. Excluding a charge of $12 million, or 2 cents per share, profit rose to $1.19 per share. Analysts surveyed by Thomson Financial had expected earnings of $1.17 per share.
Sales rose 7% to $6.21 billion from $5.78 billion last year, and beat analyst estimates of $6.14 billion. For the year, profit rose 11% to $4.1 billion, or $5.60 per share, from $3.95 billion, or $5.06 a share, in 2006. Annual revenue rose 7% as well, to $24.5 billion from $22.9 billion in 2006.
Shares rose .75% on Tuesday to close at $78.02. Shares had fallen to a 52-week low of $72.05 last week.
The earnings season crunch continues, and among companies scheduled to report earnings tomorrow are Eli Lilly and Co. (NYSE: LLY), Dow Chemical Co. (NYSE: DOW), and US Steel Corp. (NYSE: X). Here is a quick peek at each of them.
Eli Lilly hasn't missed quarterly earnings expectations in the past three years. When it reported third-quarter 2007 results back in October, its earnings per share of 90 cents beat the consensus estimate of analysts polled by Thomson Financial by seven cents, as well as the actual 80 cents per share in the same period of the previous year. For the current quarter, analysts expect earnings of 89 cents per share, or $3.54 per share for the full year. That's up from $3.18 in 2006.
But Eli Lilly's 8.3% earnings per share growth forecast for the next year is less than the industry average. The analysts' consensus recommendation has been to hold Eli Lilly for the past six months. Shares have fallen recently to about two bucks above the 52-week low of $49.09 back in November.
For drug company news that could influence the earnings results, see BloggingStocks' Eli Lilly coverage.
United States Steel Corp. (NYSE: X) shares are trading lower this morning as investors fear of a recession appear to be strong despite a surprise rate cut by the Federal Reserve this morning. Steel producers were down across the board this morning, as new construction and manufacturing tend to slow down during a recession, which could be bad news for X. However, some of the markets fears are evaporating after the rate cut and X seems to be on the rebound. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on X.
After hitting a one-year low of $71.04 last January, the stock hit a one-year high of $127.26 in June. This morning, X opened at $96.29. So far today the stock has hit a low of $96.29 and a high of $104.48. As of 11:05, X is trading at $104.21, down $0.51 (-0.5%). The chart for X looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $135 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 8.7% return in 4 weeks as long as X is below $135 at February expiration. US Steel would have to rise by more than 29% before we would start to lose money.
X hasn't been above $128 at all in the past year and has shown resistance around $112 recently. This trade could be risky if the US economy picks back up, but even if that happens, this position could be protected by resistance X might find at its recent high around $120.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in X.
Along with most of the rest of the market, United States Steel Corp. (NYSE: X) shares are taking a hit today on this morning's unemployment report from the Labor Department. According to the report, the unemployment rate in December rose to 5 percent, above analysts' estimates of 4.8 percent, and the highest level in two years. The Labor Department also said employers created just 18,000 jobs last month, far less than the 70,000 analysts expected. This heightened fears of a recession, which is bad news for stocks that need economic growth, like X. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on U.S. Steel.
After hitting a one-year low of $68.83 last January, the stock hit a one-year high of $127.26 in June. Today, X opened at $110.51. So far today the stock has hit a low of $105.06 and a high of $110.59. As of 3:20 p.m., X is trading at 106.15, down 6.27 (-5.7%). The chart for X looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $135 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think, but still leverage nice returns. For this particular trade, we will make a 4.2% return in nine weeks as long as X is below $135 at February expiration. U.S. Steel would have to rise by more than 21% before we would start to lose money. Learn more about this type of trade here.
X has never been above $135 and has shown resistance recently around $120. This trade could be risky if the economy comes back to life and demand for steel keeps rising, but even if that happens, this position could be protected by resistance the stock could find between $120 and $130, where X has topped out twice in the past year.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in X.
MOST NOTEWORTHY: The restaurant sector, American Semiconductor and First Solar were today's noteworthy initiations:
Friedman Billings resumed coverage of Cheesecake Factory (NASDAQ: CAKE) and Yum! Brands (NYSE: YUM) with Outperform ratings and a $30 target and a $46 target and Applebee's (NASDAQ: APPB) with a Market Perform rating and $25.50 target.
American Superconductor (NASDAQ: AMSC) was initiated with a Buy rating and $33 target at Jefferies, as they believe repeat orders for wind turbine electrical systems could drive rapid revenue growth from 2008-2010.
CIBC resumed coverage of First Solar (NASDAQ: FSLR) with a Sector Performer rating, as they believe shares are already pricing in the company's 2009 EPS potential.
OTHER INITIATIONS:
Morgan Stanley resumed coverage of Cablevision (NYSE: CVC) with an Underweight rating.
US Steel (NYSE: X) was initiated with a Sector Performer rating and $117 target at CIBC.
JP Morgan started SunPower (NASDAQ: SPWR) with an Overweight rating and Evergreen Solar (ESLR) with a Neutral rating.
US Steel (NYSE: X) shares are trading higher after competitor Nucor (NYSE: NUE) raised its earnings outlook for its upcoming second-quarter earnings. The previous forecast of 1.55 to 1.60 was lifted by 20 cents to 1.75 to 1.80. Analysts were looking for 1.69 and an upside surprise by NUE should signal good things for X as well. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on X.
Here are some highlights from this past week's 
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Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
