Option Trade 
United States Steel Corporation (NYSE:X) Calls
Monday, January 30, 2017

** OPTION TRADE: Buy the X APRIL 21 2017 35.000 call at approximately $3.20. Place a pre-determined sell at $6.50.

Note: No protective stop losses added -- but if you wish to do so make it $1.30.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey

United States Steel Corporation (NYSE:X), an integrated steel producer, will release its fourth-quarter results after the market close on January 31, with the consensus calling for earnings of $0.03 per share. During the same period last year the company had a loss of 23 cents per share.

Optimism is running very high on the steel sector at this time, as President Donald Trump has made it clear that increased spending on infrastructure will be a key part of his plan to create jobs in the U.S.

 Another reason for optimism is Trump’s plan to build a wall on the Mexican border. Such a project would require a huge amount of steel, which is why United States Steel, as well as other stocks in the sector enjoyed strong gains after the election.

After years of losses, X has returned to profitability, and Wall Street has driven the stock sharply higher in reaction. After posting a loss of 23 cents per share during its fourth quarter last year, Wall Street expects a modest profit of $0.03 this year. If the company is able to hit its forecast, the stock will break out and will likely rise to a new 52-week high.

United States Steel stock has risen 398% over the last year.

United States Steel Corporation’s market capitalization is $6.11 billion. United States Steel Corporation has a 12 month low of $6.15 and a 12 month high of $39.14. The stock has a 50 day moving average price of $34.46 and a 200-day moving average price of $23.60.

Factors to Consider

U.S. Steel is seeing strong demand in the automotive space, a key end-use market for steel. Moreover, the company is aggressively pursuing actions to improve its cost structure through its "Carnegie Way" program that should lend support to its December quarter results.

U.S. Steel also expects roughly $500 million of cash benefits from working capital improvements for full-year 2016, mainly associated with better inventory management. The company plans to utilize its strong cash and liquidity position to speed up the revitalization of its facilities and to fund additional growth projects.

Steel market conditions have also improved lately, driven by favorable developments on steel trade cases in the recent past, providing some reprieve to U.S. steel producers. Steel prices have recovered of late, helped by punitive trade actions that led to levy of tariffs on imports.

U.S. Steel, last month, reached agreements to supply iron ore pellets to third-party customers. The company said that it will adjust its iron ore pellet production to take full advantage of these business opportunities.

The adjustments include a restart of the Keetac iron ore plant in Keewatin, MN. The plant has been temporarily idled since May 2015 due to factors including high levels of steel imports, unfair trade and reduced steel prices, leaving hundreds of workers laid off. U.S. Steel expects production to begin at the Keetac plant in Mar 2017.

On Tuesday last week, President Trump issued a series of orders which eases the way for the Dakota Access and Keystone XL pipeline projects. This is part of his efforts to expand the country's energy infrastructure as well as overturn key decisions of the Obama government which are linked to environmental concerns.

The immediate gainers from these actions would be oil producers in North Dakota and Canada who will now have a faster route for bringing crude to refiners on the U.S. Gulf Coast. Meanwhile, the President has also mandated that these pipelines and others inside the U.S. have to be constructed with U.S-made steel. This development will clearly benefit the U.S. steel sector and particularly U.S. Steel.

According to a memorandum signed by the President on Tuesday, the Secretary of Commerce will have to prepare a plan which requires that U.S. made steel to be used in all pipelines within the U.S., whether they are new, under expansion or being retrofitted. Trump said that this plan is "going to put a lot of workers, a lot of steelworkers back to work."

Additionally, Trump said on Monday that that he intends to reduce U.S. corporate taxes to within 15%-20%. This is a major cut considering that the current tax level is at 35%. He also reemphasized that he would work to reduce regulations by a significant extent. Actions of this nature would likely have a beneficial effect for U.S. Steel, driving the stock upward.

Analysts Opinions

Investment analysts at CLSA lifted their FY2017 EPS estimates for United States Steel Corporation in a research note issued to investors last Tuesday. CLSA analyst D. Lipschitz now expects that the firm will post earnings of $1.46 per share for the year, up from their previous estimate of $0.33.

X is now trading at $33.77, but analysts have an average price target of $36.00, suggesting 8.4% upside potential.

Harvey’s Options Volatility Indicator


U.S. Steel has outperformed the categorized Steel-Producers industry over the past three months. The company's shares have gained around 71.8% over this period, compared with roughly 20.5% gain recorded by the industry.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the X APRIL 21 2017 35.000 call at approximately $3.20. Place a pre-determined sell at $6.50.

Note: No protective stop losses added -- but if you wish to do so make it $1.30.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.

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