It can be difficult to think of United States Steel as one of the stocks under $10 that could be overvalued, but this is exactly the sentiment of many industry experts. American manufacturing is just getting restarted in the wake of the coronavirus, and losses to the steel industry are expected to be substantial.
U.S. Steel itself gave guidance that it expected to lose $315 million in Q2 2020. In spite of this, revenues for the company are increasing faster than its competitors. U.S. Steel is also taking unprecedented measures to adapt to the “new normal” of a post-COVID world. Capital spending will be reduced by $125 million, and plans to upgrade facilities in Gary, Indiana, are on hold until further notice. The company will also draw $800 from its credit lines to maintain operations.
How to Buy U.S. Steel (NYSE: X) Stock and Options
If you believe in the return of American manufacturing and the reaction of U.S. Steel to COVID, there are many ways to get involved with the stock. You can purchase the stock directly, indirectly through industry-specific exchange-traded funds (ETFs) or leverage your money using derivatives.
You also need a reputable broker to avoid slippage and input errors in your investment execution. Let’s take a look at how you can choose a good broker to invest in U.S. Steel.
Pick a Brokerage
U.S. Steel is traded on the New York Stock Exchange (NYSE) and its status as an established stock over $5 (penny stock status) means that brokers can carry it without charging you an extra commission.
Its widespread access means you can focus your efforts on what the broker actually does for you rather than having to prioritize asset selection.
If you want to engage in the slightly more complicated investment strategy of buying options, here is guidance to help smooth the transaction.
Choose Strike Price
If you believe the price of U.S. Steel will rise in the future, you will be purchasing call options.
The first step in buying U.S. Steel call options is to decide on a strike price. Since you are buying options, not selling them, the premium you pay is a net debit to your account.
The strike price on the call option is the price at which you contract will execute on its expiration date. For instance, you buy a U.S. Steel call option at a strike price of $15. If U.S. Steel is at or above $15 on the day of expiration, you are contracted to buy 100 shares of U.S. Steel at $15 for every contract that you own. You have the ability to sell your option before the expiration date as well.
Strike prices are listed in your broker option lists under the ticker symbol X.
One call is the same as 100 shares of U.S. Steel stock. However, 1 options contract costs much less than 100 shares of U.S. Steel. Call options also gain or lose value exponentially compared to the value of the stock. If U.S. Steel goes up 1%, a call option may gain 10% in value.
Choose Expiration Date
The expiration date is the day of execution for your call option. On this day, the time value of your option will be 0. It may or may not have intrinsic value depending on the stock price.
You will see various expiration dates on your broker’s option chains. Pick your preferred date.
Decide How Many Contracts
After you choose your expiration date, enter the number of contracts you would like to buy. Remember that 1 contract controls 100 shares and the price of any option moves much more quickly than 1 share price.
Watch Stock Price
U.S. Steel is now one of the premarket movers that gains market attention because of the volatility in the industry. You can also buy shares in the premarket if you prefer. You will probably want to use a limit order in the premarket to avoid overpaying during this volatile time.
U.S. Steel Stock History
The United States Steel Corporation was founded by titans of American business — Carnegie, Morgan, Schwab, et al. — and the stock has benefitted from that reputation since 1901. During slower periods of manufacturing in the nation’s history, the stock’s reputation and nostalgia helped it remain above penny stock status. In the late 20th century, the corporation diversified into petroleum, construction, real estate, shipbuilding, railroads, chemicals and mining. The stock hit an all-time high of $191.96 on June 25, 2008.
The coronavirus caused all-time lows in U.S. Steel and placed the company at a high risk of bankruptcy. It remains one of the most well-known stocks under $20 and faces downward pressure from environmentalists who believe in alternative methods for manufacturing.
Pros to Buying U.S. Steel Stock
There are quite a few reasons to believe in U.S. Steel for the short and long term.
- Undervaluation: Although U.S. Steel has never been one of those penny stocks under $5, its stock price was hit hard during the coronavirus scare. With auto manufacturing and real estate picking back up, proponents of the company envision an uptick in business activity.
- Diversified interests: U.S. Steel has moved into many industries that are vertical to steel production, cementing its place in the supply chain for many businesses.
- Plenty of upside: The stock is currently trading around 50% of its 52-week highs.
Cons to Buying U.S. Steel Stock
Despite the company’s reputation as a vital component in U.S. manufacturing, there are also many reasons not to touch U.S. Steel.
- A changing marketplace: Yes, U.S. Steel is an established brand. But so were J.C. Penney (OTC: JCPNQ), Chesapeake Energy (OTC: CHKAQ) and Whiting Petroleum (NYSE: WLL). The coronavirus is taking no prisoners, and some companies just won’t be able to survive the pressure.
- An inability to change: U.S. Steel is diversified, but the industry may be moving faster than the company. With newer, smaller competitors already investing heavily in automation and remote processes, U.S. Steel stands to falter if it cannot keep up.
- Low investor returns: Even in times of success, U.S. Steel was never the best company in terms of returning that money to investors. The stock traded around the same price in 1993 as it did in 2018, and the dividend yield has never been outstanding. Oh, and it tends to cut dividends at the first sign of trouble.
The Portfolio of Steel
U.S. Steel has a storied name. You may have a chance to pick it up as a growth stock at its coronavirus price and ride it back to around $15 per share. Returns greater than that would come as a surprise to most analysts. With investors seeking newer ideas, U.S. Steel may be a company that doesn’t quite have the legs that it used to.