X: 1 Reason to Bet on U.S. Steel, and 1 Reason to Hold Back
After a scorching 35% rally in just three weeks, United States Steel (NYSE: X) is sitting at levels not seen since 2010. Powered by a wave of trade protectionist sentiment and renewed optimism over a $14 billion acquisition bid from Japan’s Nippon Steel, the industrial giant is suddenly in the spotlight.
But with the stock trading just shy of the proposed buyout price, and the political winds still swirling, investors are asking the million-dollar question: Is there still upside left, or has the rally run its course?
Let’s break down one compelling reason to stay bullish and one major red flag to keep in mind.
1 Reason to Love It: The Acquisition Could Still Fall Through
While the recent announcement of 50% tariffs on steel imports has helped, the major driver of the recent rally has been Donald Trump's vocal support for Japan's Nippon Steel's $55-per-share bid to acquire United States Steel. This deal had previously been blocked by the Biden administration and dismissed by Trump himself.
That single statement caused the stock to jump more than 20% in a single session, and for a good reason: the deal had been tied up in regulatory limbo, and Trump's endorsement is being seen as one of the final pieces of the puzzle. But here's where it gets interesting, and where the long case still has legs.
While trading below $54 per share, which is where the stock closed on Tuesday, the current price still offers some upside against the proposed $55 takeover price. That may sound negligible, but the market isn't just trading on that number. What's also being baked into the price is the possibility that the deal still might not go through and that a better offer could follow if it fails.
Union Support As a Secondary Headwind
Labor unions remain firmly opposed to the Nippon acquisition. The United Steelworkers union has repeatedly voiced concern that a foreign buyer would jeopardize domestic jobs and undercut U.S. industrial policy. Trump himself had previously been vocally against the deal, which casts some doubt on how fully committed he is to this new approval. In other words, this still isn't a done deal.
If the acquisition is ultimately blocked again, or if Trump walks back his support under political pressure, two major domestic steelmakers, Cleveland-Cliffs Inc. (NYSE: CLF) and Nucor Corp (NYSE: NUE), are widely expected to re-enter the fray with fresh bids. Both had previously shown interest and could be perceived as more "politically acceptable" acquirers.
Their potential offers would likely exceed Nippon's $55-per-share bid, especially if they believe they can push a deal through with union support.
1 Reason to Pass: The Upside Is Already Priced In
Despite all the excitement and the potential for shares to go even higher if the deal were to falter, there's a good argument to be made that United States Steel stock has simply gone too far, too fast.
Aside from the fact that it's trading essentially within a dollar of Nippon's proposed $55/share offer, from a technical standpoint, the stock's relative strength index (RSI) is above 75 and solidly in overbought territory. That suggests traders may have already priced in the best-case scenario, with little room left for upside without fresh news.
In fact, it is trading right around the most recently updated price targets from analysts such as those at JPMorgan Chase, who just this week rated the stock Neutral. With little near-term fundamental change to earnings expectations and the deal story mostly priced in, there's an argument to be made that the upside potential has all but been realized already.
There's also the lingering risk that the deal gets tied up in legal and political knots once again. Even with Trump's endorsement, it's unclear how regulators, or Trump himself, will act in the weeks ahead. This remains a volatile and politically sensitive story until a formal agreement is signed and cleared.
Investors getting involved should do so with a clear understanding of the risks and keep in mind that, perhaps more than is usual with stocks, many variables are in place right now that are outside their control.
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