When I was growing up in Pittsburgh, nearly everyone had some connection to the steel industry. If not your own parents, then it was your uncle or neighbor who was employed by the huge steel mills lining the riverbanks. Even the city’s pro football team is named in homage to the once-great industry.
For Pittsburgh’s residents, the best thing about the steel business is that it paid its workers a solid wage. Many employees with less than a high school education could purchase homes and various luxuries, and even go on vacation once or twice a year. In fact, a close relative of mine who had a master’s degree went back to work in a steel mill: It offered better pay and benefits than he could earn in a white-collar profession at the time.
The steel business drove the rest of Pittsburgh’seconomy. The relatively high wages paid to the unionized steel workers were soon redistributed to all segments of the population as the workers increased their standards of living.
Then the unthinkable happened. Low-priced foreign steel began to flood the market, shifting demand for pricier U.S.-made steel. Pittsburgh’s steel mills started closing, leaving behind rusting factories and virtual ghost towns that were once thriving centers of commerce.
High labor costs meant the U.S. steel industry simply couldn’t compete with cheaply made foreign steel. Although the domestic industry was a victim of its own success, one company was able to remake itself enough to become a viable business today. In fact, the company is showing signs that it will be a profitable long-term investment.
I am talking about United States Steel Corporation (NYSE:X).
The largest business enterprise ever launched at the time of its founding in 1901, United States Steel Corporation (NYSE:X) remains the largest integrated producer in the United States. Despite the fact the domestic steel industry crumbled to near irrelevancy in the late 20th century, United States Steel Corporation (NYSE:X) managed to stay afloat by spinning off units, moving into international locations and purchasing the bankrupt assets of its competitors.
The company boasts a market cap of close to $3 billion and an enterprise value of nearly $6 billion. Although the stock throws off a 1% dividend yield, United States Steel Corporation (NYSE:X) is not a cash cow of a company. It currently pressured by just under $4 billion of debt with just over $700 million in cash.
United States Steel Corporation (NYSE:X) shares are down about 28% this year, but it is within the current weakness that I see opportunity. The lower share price has also attracted insider buying, which is a positive sign for the stock. A director named Murray Gerber recently made two large purchases of shares: more than 72,000 at $18.99 each and nearly 13,000 more for $18.50 apiece.
In the technical picture, support exists just above $16 and resistance is at $18. Entering on a breakout close above $18 with stops just below $16 makes solid technical sense.