US Steel (NYSE:X) was a big deal back during the Trump Administration, when “buy American” was a lot less a vaguely nostalgic concept and more like a genuine plan of attack. The arrival of the Biden Administration, meanwhile, seems to have put some of this on the back burner. Given that US Steel was up 11.7% in recent trading, though, it's easy to wonder why that's the case. A closer look at US Steel suggests that several fronts are contributing to recent gains at one of America's leaders in steel.
Patents, Publicity, Patience
Three major points seem to immediately leap out in terms of why US Steel is suddenly up on the day, and the first of these is patents. A couple weeks back, US Steel secured the “NanoSteel” patents, which provided new patents for US Steel in terms of flat-rolled sheet steel. This in turn opened up new opportunities in the field for the company, allowing its customers access to what are described as “advanced high-strength steels,” by some measures the strongest steel around. NanoSteel patents offered a way to create certain proprietary alloys that offer impressive strength due to their “nano-scale microstructure.”
US Steel then followed that up with a series of publicity moves, including the launch of the verdeX line of “sustainable steel” products. The company took to the 2021 Ceres Conference to detail not only its verdeX line, but also the company's moves to reduce greenhouse gas emissions and talk about some other advances in high-strength steel technology. Just two days later, the company then rolled out a new connection between itself and the Pittsburgh Penguins, with a focus on advancing literacy and access to sports for young people.
Finally, there's the matter of patience. In the last six months, US Steel has seen roughly three-fold gains, going from a low point of around $6 per share back during the early days of the coronavirus to around $25 per share today. A recovery narrative has helped substantially, and seeing as how the recovery narrative is gaining ground thanks to states reopening—some more so than others but most everybody is to one degree or another—seeing continued gains herein isn't much surprise.
Recovering Analyst Perspective As Well
Additionally, there could be a fourth “P” at work here too: perspective. That is, analyst perspective, which based on our latest research has been trending a bit more bullish since December.
Back in December, the company had eight “hold” and three “sell” ratings to its credit. By late February, that had improved to one “buy”, eight “hold” and two “sell”, which is where we are today. That's an improvement toward the bullish, and given what things looked like back in April 2020—three “buy” ratings, six “hold” and seven “sell”—it's looking a lot more bullish as the sellers depart the front.
The average price target, meanwhile, is currently hovering around $13.57. Given that the company currently sells at $24.60 per share, there's some significant downside potential involved right now. However, many of the price targets are looking a bit stale. Only two analysts have revised their price targets since February: BMO Capital Markets and Morgan Stanley. Both raised their targets substantially, with BMO sitting at a new target of $25 and Morgan Stanley not far behind at $24.
Combining Narratives to Drive the Future
US Steel right now is benefiting from the confluence of several narratives at once. First, it's got the overall recovery narrative going for it; as people go back to work and school after in some cases several months of lockdown, or start-and-stop-and-restart lockdown, the demand for steel should increase right along side that. Throw in the ongoing gains in the housing market—which requires a certain amount of steel to operate whether in building the houses or building the tools to build the houses—and further gains for steel become clear.
Then, take the three “P”s we talked about earlier—patents, publicity, and patience—and throw them into the mix. Combining all these factors at once suggests that US Steel not only has a growth case on its side, but one that could continue to gain for some time to come. It's demonstrating that it can not only keep up with current demand, but also make headway against future demand by making itself sustainable and offering even stronger varieties of steel with its new patents. With infrastructure spending likely to be on the table soon—reports have the Biden Administration already considering infrastructure spending bills—the demand for steel is likely to pick up as well.
There's a lot going for US Steel right now, and all of these factors together explains wonderfully why the company has seen so much in the way of gains. Not only the latest set, but also the gains going back over the last year. US Steel is starting to look like a significant growth stock, and the chances the company's growth has topped out are fairly slim; getting in now may be a path to realize further gains over the next year.
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