United States Steel Corp (X)

This stock has been oversold. Steel will rebound with with the increase in spending on infastructure domestically and internationally. Its incredibly low right now (like tons of other stocks). I think their dividend is also sustainable. This stock was a buy ten bucks ago.

I see continued strong demand for steel. This stock has been doing well so far this year. I see the run continuing. The Asian economic boom will benefit steel producers including US Steel. Their exposure to Asia is more limited than some, but I don't see it being a big hinderance.

Testing out a portfolio of stocks rated outperform that are characterized by having one letter ticker symbols.

Any time I see a good company with positive cash flows selling at a significant discount to book value, I want to give the thumbs-up. As of their last quarterly filing (ending Sep 30, 2008), US Steel's book value was $49.91 per share. Despite the recessionary environment, they had (diluted) earnings of $7.79 per share. They don't report quarterly cash flows unfortunately, but for the past nine months, they had cash flows from operations equal to roughly $11 per share and free cash flows around $5.80 per share.

While debt-to-value is a little higher than I'd like to see at 63.3%, I do not think they will have too many difficulties. Current ratio is healthy at 1.89. Quick ratio is 1.06, which should be quite healthy when you take into account their positive cash flows.

Beyond the financials, I like the outlook for steel. The market is overreacting to the recession, as I think there will be a lot of infrastructure building in China and the US regardless. Undoubtedly, X's earnings and CFOs will probably drop as steel prices have fallen, but there will still be a lot of demand and given the fact that the stock is selling at roughly half its book value as I write this (under $25), it's like the market has already factored in several years of heavy losses into the price. Six months ago, everyone was high on steel but the stock prices were inflated --- now is the time to buy in. I'm also thumbs-up on NUE and MT.

This company is dirt cheap right now. Stop reading this and buy it.

Besides an attractive PE, its other financials make it ripe for the picking.

X has a healthy Earnings Per Share and Book Value to boot.
It is also sporting positive profit margin, operating margin, ROE and ROA.
Right now they have 1.4bln of cash and only about 1bln of debt.
In 05 and 06 they have been purchasing shares back, making each outstanding share worth more.

They consistently show capital surplus.

Why are you still reading this. Go buy some.

I think we could be looking at another rate cut soon, despite commodity inflation. Steel has solid margins and growing demand both domestic and abroad. Strong earnings growth and momentum.

World always needs steel.
This is the gold standard of the steel industry and it is a top American company.

The operational efficiency of US Steel is not a match to its competitors and it has a big overhang of retirees and medicare cost, With consolidation happening in steel industry and matching synergies US Steel will find itself more out of competition with its inherent cost not to mention the chinese overcapacity with steel

fast money steel recommendation

steel

When a stock is trading at less than half of it's book value and 1x earnings it is hard to go wrong, a lot of value here created by these difficult economic times. While there may be a bit of a bumpy road ahead, that is more than adequately compensated for in todays price.

Are looking to get bulk of US infrastructure contracts. If oil goes up it increases the viability as opposed to getting steel from China

We hit support today and if we break support in the next few days then I will place a short trade with a target between $120 and $117. and a stop of $129.00

The analysis presented is based on a price of $30.24.

Although the EPS has been generally been growing since 2001, it has been fluctuating wildly. For the 2002-2008 period, the compounded annual growth (CAGR) has been 75%; even trimming out the huge EPS increase for 2008, the CAGR was 64%. The return on equity (ROE) has exceeded 15% for the last five years, and the free cash flow has been positive and generally increasing since 2002.

Before I look at the valuations, I look at three indicators of financial safety. For this stock, two of the three are quite good. The Altman Z is 3.01; below 1.8 is risky, above 3 is the safe range. The Piotroski F is 8; 2 or below indicates caution, while 8 or 9 indicates that the stock is expected to rise within the next year. The weak spot was the Sloan accrual, which is 2.82; 5 or higher is high risk, while -5 or lower is excellent. Since the Sloan was not exclusionary, I looked at Value Line’s financial rating; they rated the financial strength to be A.

I use more than one valuation method to gauge intrinsic value; the first three all provide a substantial margin of safety (MOS). The first three are standards in the valuation literature. The estimate based on Graham’s formula was $680 (96% MOS). The Earnings Power Value (value of the firm) was estimated, on a per share bases, to be $223 (86% MOS). The Discounted Cash Flow estimate valued the stock at $190 (84% MOS).

The last two were based on a spreadsheet found on the AAII website; these are designed to mimic Buffett’s valuation methodology. One is based on projecting EPS growth 10 years into the future based on past EPS growth; I discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings (including dividends when applicable) return of 15%. Based on this method the target purchase needs to be below $146, and at the current price there is a 79% MOS

The second is based on estimating EPS growth through the sustainable growth rate. The per-share projected book value is estimated by taking the previous year’s book value, adding EPS and subtracting dividends (when applicable). The projected EPS is estimated by multiplying the projected book value by the average Return on Equity, and the projected dividend is estimated by multiplying the projected EPS by the average payout ratio. I then discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings return of 15%. Based on this method the target purchase needs to be below $118, and at the current price there is an 74% MOS.

Because of the extraordinary EPS reported in 2008, I revalued X with a smaller percentage growth assumption. The smallest valuation was still the sustainable growth estimate ($118) which was based on assumptions not related to EPS growth rates.

To ascertain that the price is attractive to me, I take one more thing into consideration. At the current price, would I expect an immediate 15% return on my investment (ROI) based on earnings and dividends? In this, the EPS represents about 54% of the share price by itself, so the 4% dividend yield is gravy. However, had the dividend been needed to achieve the desired 15%, I would have discounted it to some degree because there is a low to moderate risk that the dividend may be cut. This risk is assessed by evaluating several factors (Current Price, Current Yield, Current Payout Factor, Gross Margin, Operating Margin, Financial Leverage, EPS Growth). Based on this assessment, there is a low (most recent fiscal year) to moderate (TTM) risk that the dividend may be cut. In this process, I give greater weight to a TTM assessment and less weight to the most recent fiscal year.

Nonetheless, the extraordinary EPS reported in 2008 may paint too rosy of a picture. Therefore, I reevaluated the ROI by using the 2007 EPS. Even with the 2007 EPS, EPS represents 24.5% of the share price, which is still well above the 15% threshold without considering the dividend.

Based on fundamentals, indicators of safety, and valuation, X rates to be a good investment. Bear in mind that the Sloan accrual was positive, pointing to a potential problem that should be satisfied when doing your own due diligence. Essentially, the amount of cash from operations was smaller than the net profit, but not so much as to set off an automatic disqualification. In other words, when you see lots of noncash items on a company's earnings statement, stay away.

Pretty cheap for a company with strong mgmt, and long term increasing demand. I think they will be OK in the short term, but this is a value play for the long term.

p/e is only 2, historically p/e is average of 12, this one is bound to pop, especially after the uptick rule is reinstated, bham!

Time to get back in. Infrastructure is still a problem long term and steel will still be in demand in the future.

Steel manufacturers are on a run across the board. Every expert out there will agree that steel is a safe bet. It might not return significant profits, but should guarantee a slow, steady increase.

Global demand will push prices, profits and therefore this stock up.