To continue the thought from our blog update this weekend, there was much hue and cry about technology and large-cap growth volatility in the late 1990’s, but every stock and sector can be volatile, depending on the circumstances.
US Steel (X), earned $18.24 per share in 2008 (and I wish I had additional financial history on the stock), and the stock at one point in June, 2008 traded at $196, until it ended 2008 under $20 per share. That is a remarkable decline in just 6 months time, surpassing most of what we saw in late 2000, 2001 in the tech space.
X is a much lower-risk today, as earnings per share in 2013 is expected at a loss of $1.12 in 2013, versus a gain of $1.09 in 2012 and an expected gain of $1.42 in 2014.
The chart looks like the stock is bottoming, as it is trading near its early 2009 lows.
Our blog update this weekend, spent time discussing Basic Materials as a sector. Basic Mat includes X, Freeport (FCX), the copper play, and Alcoa (AA) the alumina smelter, as well as Chemicals, and other smaller sectors.
We think Basic Mat could benefit from a return to global growth, although China growing ahead of its current pace, would likely help the most. Sunday night’s July 14th, China GDP report showed the country growing at 7.5% last quarter, if those numbers are to be believed.
Watch how X trades around earnings. Alcoa (AA) was up almost 4% last week, despite the “more of the same” earnings report.
One final thought: with US Steel’s unions and the defined benefit plans, aging workforce, and the huge pension benefit obligation, under pension accounting, higher interest rates is accretive to EPS. Those companies with the highest pension expense and PBO’s will benefit the most from rising interest rates, and thus higher discount rates in terms of the present value of the pension obligation.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager