Trading Nation

Stock that’s more than quadrupled is still attracting the bulls

Trading a surging steel stock

Call it the stock of steel: With two months down in 2017, U.S. Steel is on track to follow an astonishing year with a phenomenal one.

After finishing 2015 under $8, more than 80 percent below its September 2014 high, the stock has made a startling recovery, more than quadrupling in value in 2016. And it kicked off 2017 with a rally of nearly 20 percent, which took the stock to nearly $39 on Tuesday.

Even after such a move, there's still time for investors to buy in, according to a research report this week from Cowen metals and mining analyst Novid Rassouli.

The increasing use of steel in U.S. oil production, in addition to internal corporate restructuring, led the analyst to do a rather extreme about-face on the stock, raising his rating from market perform to outperform and taking his price target on the stock from $36 to $60.

Recently, U.S. Steel has seen a major boon thanks to optimism about President Donald Trump's anticipated economic policies. While many companies would fear a potential trade war, increased tariffs would be great news for domestic steel producers like U.S. Steel, which have recently had trouble competing with producers in China and elsewhere. In late January, Trump insisted that certain oil pipelines be crafted from American steel.

The company has also been a beneficiary of increasing economic optimism. Steel demand is highly levered to the overall corporate outlook, which helps explain why U.S. Steel shares tend to rise and fall alongside the market as a whole, but much more dramatically. Over the past three years, the stock has enjoyed a beta of 3.7, meaning that if the S&P rises 10 percent in a given period, U.S. Steel could be expected to rise 37 percent. This is the highest beta of any company of its size or larger within the broad S&P 1500 index, according to data from FactSet.

At this point, "the stock could be a little overbought," said Boris Schlossberg of BK Asset Management, pointing to a surge of optimism in the analyst community, as well as a potential slowdown in auto sales.

From a chart-centricperspective, Ari Wald of Oppenheimer said Tuesday on CNBC's "Trading Nation" that the stock "is getting back to some pretty formidable resistance in the low- to mid-$40s, which marked the stock's peak back in $40."

While acknowledging that its "trend is still very positive," Wald concluded that "we see more attractive opportunities elsewhere right now."

Still, for those bullish on overall stocks and on the oil sector, U.S. Steel could prove an appealing, if highly volatile, pick.