United States Steel Corporation (X), Cliffs Natural Resources Inc (CLF): Is the Steel Industry Finally Worth a Look?

Virtually any company involved in the steel industry has performed terribly lately.  For example, United States Steel Corporation (NYSE:X) is just 3.7% above its post-crisis low of $16.66 in 2009, after crashing from a high of $196 a year earlier.  Since the beginning of this year, shares have fallen more than 30% on uncertainty about global demand.  However, as I have said several times, uncertainty creates some of the market’s best opportunities, and I believe that to be the case here.  I’d like to take a look at a few of my favorite players in the steel industry and see where they might be going.

United States Steel Corporation (NYSE:X)

As mentioned before, United States Steel Corporation (NYSE:X)’s performance has been absolutely horrendous since rebounding to around $70 per share in 2010.  While it is true that steel demand has been shrinking all around the world, United States Steel Corporation (NYSE:X) has taken measures to improve their balance sheet, with the goal of riding out the tough times more comfortably.  The company’s liabilities have decreased by around 7% since last year and their pension and healthcare costs are gradually declining.

United States Steel Corporation (NYSE:X)

Shareholders who stick with United States Steel Corporation (NYSE:X) just might be handsomely rewarded.  Having posted negative earnings every year since 2008, United States Steel Corporation (NYSE:X) is expected to finally return to profitability this year with earnings of $0.94 per share.  While this doesn’t make the stock sound incredibly attractive at 18.4 times forward earnings and over $3 billion in net debt, consider that earnings are projected to rise to $2.22 and $3.26 in 2014 and 2015, respectively, meaning that if the company simply meets expectations, shares are trading for just 5.3 times 2015’s earnings!

I realize that meeting these numbers are a big “if,” however United States Steel Corporation (NYSE:X) could easily become a $50 stock again within the next couple of years if they seem to be on track.  We should get a better idea of the state of the company when they report earnings on April 30.

Cliffs Natural Resources Inc (NYSE:CLF)

Cliffs Natural Resources Inc (NYSE:CLF) has been severely beaten down this year, losing over half of its value in the last two months alone. Cliffs Natural Resources Inc (NYSE:CLF) was trading for over $100 as recently as 2011 and is now under $20.

The largest supplier of iron ore pellets to the steel industry, Cliffs Natural Resources Inc (NYSE:CLF) fell off of a cliff (no pun intended) after sales declined by 10.5% in 2012, and they are projected to decline an additional 6.8% this year.  After the recent decline, however, I think Cliffs Natural Resources Inc (NYSE:CLF) is priced right.  When the company reports its latest results on April 24, I think people will realize that the sky is not falling; that is the steel industry is not in quite as bad of shape as the market seems to believe.