Investors in United States Steel Corp. (NYSE:X), have watched the stock drop from about $29, to below $18 in just a few short weeks. If that wasn't enough, investment analysts at Goldman Sachs (NYSE:GS) recently downgraded shares of AK Steel (NYSE:AKS) due to concerns about low prices for steel, pension obligations and high levels of debt. This caused many other steel stocks to drop, and AK Steel fell to levels not seen in about 8 years. However, the drop in U.S. Steel appears exaggerated and the stock is now very oversold. In the short-term, a sharp rebound in this volatile stock seems likely, and in the long-run, even larger gains are possible. Here are 4 reasons to consider buying this leading steelmaker today:
1. United States Steel is one of the largest steelmakers in the world. With headquarters in Pittsburgh, Pa., it also has major production operations in the United States, Canada and Central Europe. The company makes a variety of steel sheet and tubular products which are used in the machinery, construction, automotive and many other industries. The company has a raw steelmaking capability of 29.3 million net tons, per year. The size and scale of this company puts it in a unique position to benefit from an eventual turnaround in the global economy.
2. United States Steel shares have come down too far and way too fast. The fear over the European debt crisis has brought the stock down to undervalued levels as it now trades for just 9 times earnings estimates for 2012, and only around 5 times for 2013 estimates. It's important to note that earnings have been depressed by a weak economy for years now, but if the company can earn solid profits now, it is a positive sign as to how much more it could earn when the U.S. and global economies are eventually stronger.
3. The company has a solid balance sheet, with about $652 million in cash and around $4.12 billion in debt. After a big recent drop, the stock now trades well below book value, which is $24.03 per share.
4. United States Steel is just starting to benefit from extremely cheap natural gas prices. In fact, companies like this one are switching from coal to natural gas because it has become so cheap. Energy costs are a huge expense for steelmakers, so any savings in this area could have very positive results for the bottom line. America is considered to be the Saudi Arabia of natural gas thanks to new fracking technologies, so the abundant supply at low prices is likely to become a permanently positive factor for companies like United States Steel.
The weakness in stock prices and in the global economy won't last forever. Investors with a short-term view could see a rebound soon from oversold levels, but those willing to patiently wait are likely to see the biggest rewards from an investment in United States Steel.
Key Data Points For United States Steel From Yahoo Finance:
Current Share Price: $18.19
52-Week Range: $17.67 to $47.33
Dividend: 20 cents per share which yields 1%
2012 Earnings Estimate: $1.98 per share
2013 Earnings Estimate: $3.48 per share
P/E Ratio: about 9 times earnings
Key Data Points For AK Steel From Yahoo Finance:
Current Share Price: $4.66
52-Week Range: $4.59 to $16.75
Dividend: 20 cents per share which yields 3.4%
2012 Earnings Estimate: 17 cents per share
2013 Earnings Estimate: 97 cents per share
P/E Ratio: about 25 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.