Today US Steel (X) reported a loss of 267 million dollars for Q4 of 2009. The $1.65 per share loss was 22 cents below analysts expectations of a loss of $1.44. The big surprise is that US Steel is forecasting a similar loss for Q1 of 2010. The projected loss would be the 5th straight loss for US Steel. The stock has been pummeled dropping over 10% to $50.50 per share today. I listed US Steel in a post last week as one of three stocks that investors should consider selling. I believed that US Steel’s stock valuation was too rich when shares were trading over $65 last week. I received a lot of emails from individuals who said that I was crazy and that the steel giant was only headed upward. Over the past week US Steel has lost 23% of its value and I don’t believe shares have totally bottomed out.
Why did I think US Steel was overvalued? The stock was priced for perfection. Analysts were all over television screens telling investors to buy US Steel despite its hefty PE ratio. Merrill Lynch and Deutsche Bank were adding US Steel to their buy lists when the stock was trading at its 52 week high. The stock was priced for a robust economic recovery, rising steel prices and lower raw material costs. It was obvious that any negative news was going to punish the stock badly.
So what do I expect now? I expect brokerage firms to change their tunes and begin downgrading US Steel to their sell lists. The stock is a screaming buy in the upper 20’s but I doubt it will ever get that low. I would actually look at buying shares of US Steel in the high 30’s to mid 40’s now that expectations have been tempered.
