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Bear of the Day: U.S. Steel (X)

Eric Dutram

Although the U.S. economy has seen some decent figures on the industrial production front, many investors remain lukewarm at best about the materials sector. Part of the reason for this is because many other markets—such as China and Europe—are still facing extremely sluggish conditions, which is curtailing demand for a variety of materials.

This trend has been especially apparent in the steel market, as a number of key producers have found it to be incredibly difficult to grow earnings or even revenues in this lethargic environment. In particular, this gloomy situation has been terrible news for the once-giant U.S. Steel Company (X).

U.S. Steel in Focus

U.S. Steel is still the country’s largest domestically owned integrated steel producer, though its glory days have since long past. Now, the company is a mere shell of its former self, struggling to remain profitable in the face of extreme levels of foreign competition.

This terrible trend is especially apparent when investors look at the earnings estimate picture for the company. Estimates have fallen like a stone for all time periods we follow, with the consensus now projecting a full year loss for U.S. Steel of about $1.31/share.

This represents an incredible slide, as just two months ago the consensus was at (a positive) 99 cents/share. Current quarter figures are equally depressing; the consensus from two months ago was at $0.41/share, while the current figure comes in at -$0.79/share.

Now, analysts are expecting triple digit earnings contractions in terms of year-over-year figures for both the current quarter and current year estimates. Meanwhile, all of the estimates for the current quarter and current year time frames have gone down, suggesting universal agreement among analysts for X’s bearish outlook.

Better Plays?

Given all this bad news, investors shouldn’t be surprised to note that U.S. Steel has earned itself the dreaded Zacks Rank #5 (Strong Sell), meaning that it may be likely to underperform other stocks. This would continue a long trend for U.S. Steel, suggesting that investors may want to look elsewhere for investments.

While the steel space is pretty poorly ranked, there are a few top Ranked stocks in the sector which could be great plays for some high risk investors out there. Currently, two firms have a Zacks #1 Rank in this steel market; Kobe Steel (KBSTY) and Shiloh Industries (SHLO).

Both of these firms appear to be better positioned than U.S. Steel, and both of the companies are looking for solid earnings growth this year when compared to the prior full year period. Plus KBSTY and SHLO have seen their Rank move from a #3 to a #1 in the past week, suggesting that now might be the time to get in on these as opposed to the lackluster U.S. Steel.

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