United States Steel Stock on the Rise, but There's Reason for Caution

This has been a spectacular year for United States Steel (X) . The stock has zoomed up more than 250% and could continue its long-term upward trajectory, particularly if President-elect Donald Trump fulfills his plans to launch a massive infrastructure initiative. 

Just a year ago, the stock was hovering around a dismal $8 per share. 

United States Steel seems to have benefited from star hedge fund manager David Einhorn's acquisition of a stake in the company, a souring on low-cost Chinese steel and rising global prices. The Trump presidency has heartened investors further. The stock is up about 5% since last week's surprising election result. 

Still, there are issues to consider before buying shares.

It's been a good year for a number of steel companies. Year to date, Mechel is up 254%. Peer AK Steel is up 255%. Companhia Siderurgica Nacional, Olympic Steel and Steel Dynamics all have had strong gains.

United States Steel should remain an investor favorite as steel demand remains robust.

Investors should exercise caution, however. The stock is already trading more than 40% higher than analysts' median price target.

But earnings have missed expectations. United States Steel underperformed third-quarter earnings estimates by a wide margin.

The company earned 40 cents a share excluding items, which was half of the 80 cents a share that analysts had expected. Revenue was $2.686 billion, less than the expected $2.82 billion.

"We faced some operational challenges that limited our ability to realize the full benefits of an improved pricing environment," United States Steel CEO Mario Longhi said in a statement earlier this month.

The company said that earnings were impacted by planned power outages tied to maintenance projects and unplanned outages. The company believes the maintenance projects will improve efficiency.

United States Steel could continue to be an outstanding investment, but be prepared for some bumps.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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