United States Steel Corp. (X:NYSE)
Price at Preparation: $40.82 (Apr 15th, 2024)
What they do
United States Steel Corporation (X:NYSE) is a steel producer. The Company operates through four segments: North American Flat-Rolled (Flat-Rolled), Mini Mill, U. S. Steel Europe (USSE) and Tubular Products (Tubular). The Flat-Rolled segment engages in the production of slabs, strip mill plates, sheets and tin mill products, as well as all iron ore, direct reduced grade pellets, pig iron, and coke production facilities in the United States. The Mini Mill segment produces hot-rolled, cold-rolled, coated sheets and electrical steels. The USSE segment produces and sells slabs, strip mill plate, sheet, tin mill products and spiral welded pipe. The Tubular segment produces and sells rounds, seamless and electric resistance welded (ERW) steel casing and tubing (OCTG), and standard and line pipe and mechanical tubing. It serves the automotive, construction, appliance, energy, container, and packaging industries with high value-added steel products such as its XG3 advanced high-strength steel.
This week at Theta Bandits, we are bringing a second chance at a strategy using an acquisition target to potentially benefit from – let’s check it out!
Opinion
Like mentioned above briefly, the choice for this stock is the catalyst of United States Steel Corporation’s (X:NYSE) shareholders voting to approve accepting an offer of purchase from Nippon Steel of Japan on April 12th, 2024 for $14.1 billion dollars, which equates to about $55.00 USD per share (approximately +35%). If we ignored this Price Target (PT) of the buyout and looked at the 12-month PT, there is still a reasonable upside range from a low of $45.00 USD (+10%) to a high of $64.00 USD (+59%), with an average PT of $51.75 USD (+27%). This stock is not one you would depend on for dividends, so we are looking strictly for price appreciation.
Keep in mind these PT’s above are from before the shareholder vote, which gives confidence to hold the stock in the case the deal gets blocked by regulators or politicians, which is a risk that was realized with our previous attempt at using a buyout for a gain. As always, the stock market is never a sure thing, so we need to adjust the strategy to fit our personal risk profile.
Plan
Using the visual aid graph below, we show the 12-month PT’s (low, mid & high) in purple as well as the buyout price in green and that is the target. As per news reports this deal is supposed to close mid 2024, but with US elections this may be delayed and used as a bargaining chip for votes in the election, which is definitely a risk to be aware of. Their next Quarterly Earning Report (ER) will be April 25th, 2024 and while they have not missed the last few, the market reaction has the potential to be volatile as shown by the big gaps highlighted in blue between ER’s – it may be prudent to wait and play the reaction to the ER vs the volatility at the ER.
This pick will need time to work through and the deal timing has a risk of changing, so I would use shares instead of options to attack this strategy, which means keeping capital tied up while the play works itself through. Since this can react to news, keep your eye on the news and have mitigation protocols in place to either secure profit or protect capital with a stop-loss. The $55.00 USD target is the ideal, but to be safe use the support / resistance lines (marked in orange) as a guide to protect your trade.
For more content consider our Theta Bandits Discord community, a hub for traders to ask questions, share ideas and strategies like the approach above for various other tickers daily. Traders in this community could potentially attack positions using a variety of methods discussed in previous Top Pick Tuesdays.
RISKS
We have tried a plan like this before and they stock has been crushed by regulators. Make sure to plan your trade with-in your risk tolerance and give it the time required to be successful, while setting and updating limits to mitigate risk and setting exit points for your position, as necessary.
Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.
