Will U.S. Steel Stock Continue To Outperform Despite Economic Headwinds?

US Steel stock has had a strong run recently, rising nearly 35% over the past three months. There have been many positive developments for the stock in recent months. China – the leading consumer of steel – has eased Covid-19 restrictions in recent weeks and the massive reopening of the Chinese economy should result in increased demand, supporting the world steel prices. The pricing environment is also looking better recently, with US Steel raising prices for all carbon hot-rolled, cold-rolled, and coated steel products by a minimum of $60 per short tons about a month ago. US Steel also issued better-than-expected earnings guidance for the fourth quarter, with adjusted earnings projected to stand at $0.58 to $0.63 per share, compared to a consensus estimate of almost $0.40 per share. Additionally, unlike its European peers, US Steel is less vulnerable to uncertainty related to the war in Ukraine and rising energy prices.

However, despite recent developments, there are also risks. Many economic indicators point to a recession in the US The yield curve – seen as a very reliable indicator of the coming recession – remains inverted. The US Fed is maintaining its hawkish stance despite cooling inflation, with further interest rate hikes due in 2023. US manufacturing is also cooling. The S&P Global purchasing managers’ index fell to the lowest level seen since June 2020 at a seasonally adjusted 46.2 in December 2022 and down from 57.7 in December 2021. This could affect US Steel with more exposure in the North American market. While US Steel stock is pricing in some uncertainty, cyclical stocks typically react more strongly by moving lower. We value X stock at about $25 per share, roughly 7% below the current market price. Check out our analysis on US Steel Pricing for more details on what drives our valuation for US Steel and how it compares to peers. Also, check out our analysis on US Steel Profits

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