According to a Form 4 filed with the SEC, Murry Gerber, a member of the Board of Directors at United States Steel Corporation (NYSE:X), directly acquired almost 13,000 shares of the company’s stock on May 8th at an average price of $18.50 per share. We track insider purchases because, in theory, insiders should be quite hesitant to increase their company-specific risk in this way. Unless they have a good deal of confidence in the stock, it is rational for them to diversify instead. Studies somewhat back this up, showing a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading).
United States Steel Corporation (NYSE:X) is down 90% from its levels five years ago, including a 27% decline in the last year. In the first quarter of 2013, its revenue declined by 11% versus a year earlier as the demand for steel- which is closely tied to overall macro activity (as shown by the stock’s beta of 1.8)- has continued to be low as China slows down somewhat and growth in Europe continues to be stagnant. Operating income also declined if we add back a loss on disposal of assets to the first quarter of 2012, and with U.S. Steel’s interest expenses taken into account the company was unprofitable for the quarter. Cash flow from operations was about $230 million, down from a year ago but enough to cover capital expenditures.
Wall Street analysts are predicting a poor 2013 for United States Steel Corporation (NYSE:X) but then a strong recovery in the following year- specifically, the forward P/E is 12. Of course, we wouldn’t want to rely entirely on sell-side forecasts (which often tend to be too rosy) but we can at least see where the insider purchase is coming from- an agreement that business conditions will improve. Interestingly, earlier this month we had found several company insiders at Walter Energy, Inc. (NYSE:WLT) buying stock; Walter Energy, Inc. (NYSE:WLT) is a major producer of metallurgical coal, which is used in the production of steel, and that company has been struggling over the past couple years as well.
In addition to insider trading activity we also follow quarterly 13F filings from hedge funds and other notable investors; we use this information to develop investing strategies (the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and to track interest in individual stocks. According to our database, Renaissance Technologies (which was founded by billionaire Jim Simons) owned almost 2 million shares of United States Steel Corporation (NYSE:X) at the end of December (check out Renaissance’s stock picks). Billionaire David Shaw’s D.E. Shaw reported a position of 1.4 million shares (find D.E. Shaw’s favorite stocks). However, a number of market players are bearish on United States Steel Corporation (NYSE:X) with the most recent data showing 29% of the float held short.