Don't Consider U.S. Steel Despite Its Attractive Share Price

With seemingly little prospects of profitability, investors should move on to stocks with better outlooks.
By Richard Saintvilus ,

The metals & mining industry, which has lost 30% of its value in 2015, continues to be one of the worst-performing groups in the market, according to research from Fidelity Investments.

Although U.S. Steel (X) - Get Report , one of the largest steel producers in the U.S., continues to make operational improvements, including cost-cutting to offset slumping steel demand, the company has missed Wall Street's revenue and earnings targets in two straight quarters. Its share price has suffered significantly, plummeting 57% so far in 2015 and 70% over the past twelve months.

Shares of U.S. Steel, currently priced around $11, are trading more than 70% below their 52-week high $42.25. Ahead of the company's third-quarter earnings results, which are due out before after the closing bell Tuesday, investors want to know if it's time to buy? It would seem, based on analysts' average 12-month price target of $17, that buying the stock is the consensus. But I would advise against that.

U.S. Steel, like its peers AK Steel (AKS) - Get Report (down 53% in 2015) and ArcelorMittal (MT) - Get Report (down 50% in 2015) can't escape the wrath of a stock market that is seemingly ready to punish anything with poor fundamentals. Investors would do well to avoid these shares, regardless of how attractive they may look.

For the quarter that ended September, the company is expected to post a per-share loss of 17 cents, reversing earnings of $2.16 a share in the year-ago quarter. Revenue, meanwhile, is projected to decline 35% year over year to $2.97 billion, compared to the year-ago quarter when revenue reached $4.59 billion.

For the full year, the per-share loss is projected to be $1.01, compared to a profit of $4.47 in the year-ago quarter. Full year revenue of $12.14 billion would mark a year over year decline of 31%.

Owing to weak steel commodity prices, U.S. Steel's business economics aren't working, based on these projections. Complicating matters, steel companies continue to be hurt by slumping prices of iron ore -- the main ingredient for making steel.

Accordingly, analysts -- on average -- project U.S. Steel's earnings to decline by an average of 3% annually in the next five years. So, with seemingly little to no prospects of profitability, investors should move on to stocks with better outlooks.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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