United States Steel Corp. has always been a volatile stock. Since the company went public 26 years ago, the stock has been as low as $6.67 in January of 2016, and as high as $191.96 in June of 2008. But since Donald Trump took office as president, the stock has surged to a more than two year high under Trump’s promises of looking after U.S. manufacturing and trade, and increased infrastructure spending. Yet, Tuesday’s earnings report, which showed a loss of $180 million in 2017’s first quarter, sent shares plunging to U.S. Steel’s all-time biggest single-day drop. The surprising thing? The loss was only about ⅓ the loss it suffered a year ago. So why the sudden panic?
What is Happening to U.S. Steel?
The good news for U.S. Steel? It’s got an ally in President Trump.
The bad news? The company is its own worst enemy.
U.S. Steel has been more focused on keeping competition out than improving itself to be more efficient and profitable. The company has been one of the biggest beneficiaries of Trump’s presidency, with shares surging to their highest point in more than two and a half years under Trump since his inauguration. His promises of protecting U.S. manufacturing boosted shares. As a result, the company lobbied for tariffs on steel imports, and looked to be achieving its goals there.
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One thing the company seemed to overlook, though, was improving its own business. Regardless of industry, no business can ever feel complacent, or shares will stagnate. And that’s what happened with U.S. Steel. While the competition worked on new processes and technologies over the last decade during the Great Recession and downturn, U.S. Steel put off investments and focused more on not spending money for the short term gain rather than the long term plan. As a result, the company now finds itself way behind the curve.
While shares may have dropped on the earnings report, the company’s losses were about a third of last year’s. The big selloff came from the company acknowledging just how far behind the competition it is. Even with Trump’s help, U.S. Steel is still years behind the competition in terms of efficiency and production costs. Management promised to accelerate upgrades for equipment, but that can take up to 5 years. And that’s why investors are selling.
Watch this video from CNBC about trading in surging steel stock:
While shares of U.S. Steel Corp. (X) will bounce back eventually, expect shares to continue DOWN for the foreseeable future.
Trump is looking to increase the lumber tariff on Canada. Find out how it can affect American homebuyers right here.
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