United States Steel ( X ) will release its fourth-quarter results after the market close on January 31, with the consensus calling for earnings of $0.03 per share. During the same period last year the company had a loss of 23 cents per share, and the stock has risen 398% over the last year.
X was recently trading at $33.22, down $5.92 from its 12-month high and $27.07 above its 12-month low. Overall technical indicators for X are bullish with a strong upward trend. The stock has recent support above $31.30 and recent resistance below $35.30. Of the 13 analysts who cover the stock, four rate it a "strong buy", six rate it a "hold", and three rate it a "strong sell". The stock receives S&P Capital IQ's 4 STARS "Buy" ranking.
Optimism is running very high on the steel sector at this time, as President Donald Trump has made it clear that increased spending on infrastructure will be a key part of his plan to create jobs in the U.S. Another reason for optimism is Trump's plan to build a wall on the Mexican border. Such a project would require a huge amount of steel, which is why United States Steel, as well as other stocks in the sector enjoyed strong gains after the election. After years of losses, X has returned to profitability, and Wall Street has driven the stock sharply higher in reaction. After posting a loss of 23 cents per share during its fourth quarter last year, Wall Street expects a modest profit of $0.03 this year. If the company is able to hit its forecast, the stock will break out and possibly rise to a new 52-week high. X is now trading at $33.22, but analysts have an average price target of $36.00, suggesting 8.4% upside potential.
Stock Only TradeIf you're looking to establish a long stock position in X, consider buying the stock under $33.25. Sell if it falls below $30.00 or take profits if it gets to $38.25.
If you want a bullish hedged trade on the stock, consider an April 19/24 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (43.0% annualized*) and the stock would have to fall 26.4% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an April 45/50 bear-call credit spread for a $0.40 credit. That's a potential 8.7% return (37.8% annualized*) and the stock would have to rise 36.6% to cause a problem.
Covered Call TradeIf you like the stock, but wish to lower your cost basis on a new position, you may want to consider an April $31.00 covered call. Buy X shares (typically 100 shares, scale as appropriate), while selling the April $31.00 call for a debit of $28.30 per share. The trade has a target assigned return of 9.5%, and a target annualized return of 41.7% (for comparison purposes only).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com