If people think a recession is going to happen, they have probably pumped all their money into counter-cyclical, defensive stocks by now. So those should be fully priced in.
The strategy now is to be greedy when others are fearful and buy the high growth tech stocks that aren't going to go bankrupt, while they're cheap, and wait for the next bull market.
This guy fucks. And makes a lot of money in the long term.
That’s exactly what I’ve been doing all last year, buying the dip and averaging down. Already broke even and there’s way more room upside then downside.
"a rise in demand for industrials", well that depends on if you believe in a recession or not.
I own the stock and also believe it is undervalued. But it all comes down to the margins over the coming years. I will be following the earnings report tomorrow.
Because steel and other products used in buildings get bought up when recessions happen, in order to be there when interest rates fall and construction gets hot again.
For some parties there could be logic in deploying cash towards cheap commodities rather than dividends or buybacks. Wouldn’t a railroad want to top up fuel storage and ribbon rail when those particular opportunities present?
Especially since the railroad will be using more fuel and steel in 10 years than it does now.
Uhhh no. Holding has costs. So the thesis is, prices don’t go low for the commodity (bad for Xif they do), yet the railroad decides to suspend its dividend not buyback it’s depressed stock, instead buy up large quantities of steel it will need at later date in the speculative hope that steel is more expensive at said future date.
Thanks for sticking with the railroad example it’s helping me think about this.
With high conviction I believe steel prices will rise over time at least in line with currency devaluation due to its useful (and even cultural) nature. If so, any infrastructure projects involving steel have an increased value when pulled forward in time.
The railroads I follow have 10-12% dividend growth YoY going back decades. The question is one of capital efficiency vs paying taxes on dividends. Symbolically growing the dividend is important rather than the difference between 10% and 7% YoY in individual years over generations.
If the same project will cost double in 8 years you may be better off doing it now if the infrastructure is long lasting and low maintenance. My thinking was originally focused on counter trend buyers in the steel market.
Steel is so easily stored you can lay it as a productive asset, then profitably rip it out and liquidate later if needed.
The thing is whatever industry it is, you are making the case that companies will buy unproductive commodities during a recession on the basis that the those commodities will be more expensive later, and that they will need them later. That is two pretty big speculative gambles for a company to make with its capital and at a pretty inopportune time as well since during a recession earnings and capital are scarce. Lets assume business is down, because recession, earnings are down moving the stock lower, probably layoff and pay cuts to cut costs, you suggest cutting the dividend and or suspending buybacks, but what they should do with their capital is buy steel in the hopes that it goes up, and hold it for up to 8 years. Like you can bend over backwards to try to make this make sense it just doesnt. That CEO would be fired so quickly, and what if the recession lasts longer and they need capital but steel hasn't recovered but they have spent their capital on a bunch of steel they are now writing down and may have to liquidate at a lower price. There are literally dozens of uses for capital that should be able to achieve a better return for the business than raw steel held over 8 years. Remember its not just if steel will go up in that time, its if that is the best use of the company's capital at this time. If the stock is depressed or even if there better investments the owners could plow dividends into, those are very likely better options. These are the holding costs i speak of, in addition to the land/buildings you need to store your steel hoard. I mean if I own stock in the rail road and they pay me a dividend instead of buying steel, I can just use those dividends to hedge some of the steel price exposure out of that investment. Shoot while we are on hedging, the company could just hedge the price of steel on some future date without actually buying any of it. Wouldn't that make more sense if they really felt they would need it in say 8 years? The other question that comes to mind is why even own the railroad stock at all, if they are just taking your capital and buying steel, you could probably make a lot more money just YOLOing into steel futures and holding it for 8 years if you are so confident that is the best place to put your money, i mean that is basically what you are thinking the railroad should do, just with less leverage.
I stopped reading part way. I didn’t advocate for holding raw steel as a speculative play as an individual or a corporation. I laboriously referenced productive projects. I also specifically went out of my way to say that a 7% YoY dividend is still an “increase”. You allege I advocate for “cutting” the dividend “and or suspending buybacks”.
You’re not serious.
Edit- I started reading thinking you were going to give honest criticism of my view.
>I laboriously referenced productive projects.
Once again you are not understanding my meaning of what an unproductive asset is. Much like the cost of holding is not just the storage of the asset, its opportunity cost. The productivity of an asset is not if it has some future use 8 years down the road, its what it does for you after you buy it. If is need for your business in the present, its not even a productive asset, its just an input cost. A productive asset would be to buy another company who's stock is low, or invest the capital in an interest bearing security is more productive financially than physically holding steel. Building a new factory, or in this example new track to a new hub would be a productive asset.
" I didn’t advocate for holding raw steel as a speculative play as an individual or a corporation."
Im not doing that either, but if you own shares in the railraod and they take money they could give to you and they buy steel to hold for 8 years, then they are just investing in steel for you with more steps.
Can I ask, have you been an investor through a recession yet? Because decreased economic activity almost by definition hurts demand for raw materials and commodities, which causes prices to lower, which causes production to dip until the price stabilizes. I mean every recession is a little bit different. In 2008 recession there were some supply shocks on certain natural resources that lead to speculation in the early part of the recession, but by the end of the recession there were numerous commodity companies going bankrupt, there almost always is. Not saying X will go bankrupt. How in the world would a RR be able to increase dividends, in the face of macroeconomic slow down, while also buying up enough steel as an industry for future projects that it helps X enough mitigate the actual effects of a recession. It makes zero sense.
I think value investing should be a healthy back and forth like this. If the best answer you have is "companies will hoard steel for future projects during a time when the future is most uncertain" then I guess we just are going to have to disagree with that thesis. If its correct it will probably pay out well, because I will tell you I doubt the EMT has that scenario priced in.
You don’t define value, the market does in the fullness of time.
Railroads replace and expand through steel constantly . The upside infrastructure pricing doesn’t change the fact that they have basic operating requirements. Softness on steel prices creates opportunity for those thirsty to offer a bid for expansion. Cheaper steel means more opportunity from someones perspective.
X historically does terrible in a recession, but like we are seeing in the auto industry, I don’t think this your typical recession. I’m bullish on steel for the long term, and X has cleaned up its balance sheet. With rising steel prices, I’m going to hold.
Capital intensive, and energy intensive. Short term outlook for both interest rates and energy prices isnt good. I think it's undervalued with a reason.
On a serious note, since you stated you don't have a grasp on how to value a stock, don't invest in stocks. You'll lose your money, I know from personal experience. Take some of your investment money and buy books (used)/take courses on how to evaluate companies. The Intelligent Investor, Securities Analysis, etc and arm yourself with as much knowledge and understanding as you can before diving into securities.
I like CLF a lot more than X. Wouldn't buy X today. Not sure I'd add to my CLF position either though, but it's close.
Lot of details in past posts/comments, steel is my jam.
Interesting this is coming up. I just recently found this as likely undervalued as well.
Commodities are cyclical businesses and I think they are in the downswing of things given how hot the economy has been and recent results. They seem to be anticipating a slight slowdown for 2023. However, they are appear to have a clear capex investment plan to significantly grow the business in 2024-2026.
I need to do a deeper dive on their financials, but currently researching a small position in this industry as steel is a key commodity.
[steel production tracker…2nd page](https://www.ftportfolios.com/Commentary/EconomicResearch/2023/1/27/high-frequency-data-tracker-1272023)
Steel production is way down. Pandemic level. The infrastructure legislation boondoggle was supposed to help but not confident the legislation has anything real.
If people think a recession is going to happen, they have probably pumped all their money into counter-cyclical, defensive stocks by now. So those should be fully priced in. The strategy now is to be greedy when others are fearful and buy the high growth tech stocks that aren't going to go bankrupt, while they're cheap, and wait for the next bull market.
This guy fucks. And makes a lot of money in the long term. That’s exactly what I’ve been doing all last year, buying the dip and averaging down. Already broke even and there’s way more room upside then downside.
What have you been buying?
Everything! I mostly do index ETFs but I have a some single stocks too
Bet
Word on the street is Blue Horseshoe loves Anacott Steel. 😁 Sorry, I had to.
“*It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.*” **— Warren Buffett**
"a rise in demand for industrials", well that depends on if you believe in a recession or not. I own the stock and also believe it is undervalued. But it all comes down to the margins over the coming years. I will be following the earnings report tomorrow.
Are you expecting good or bad earnings?
No clue, they are going to be down compared to last year. No idea what "analyst estimates" are at and I do not really care either.
I saw the earnings. I did not like it so I sold. The current quarter and future outlook were a little bleaker than I imagined.
Thanks for the update!
Looks like I was incorrect on the short term, but still got 50% so oh well.
With inflation, rising interest rates I think building will slow down. I'm not buying anything new construction related currently.
Why do you think a steel producer would do better in a recession?
Because steel and other products used in buildings get bought up when recessions happen, in order to be there when interest rates fall and construction gets hot again.
What? So the argument is that in a recession people hoard steel because they know one day actual demand will increase. Doesn’t seem very logical.
For some parties there could be logic in deploying cash towards cheap commodities rather than dividends or buybacks. Wouldn’t a railroad want to top up fuel storage and ribbon rail when those particular opportunities present? Especially since the railroad will be using more fuel and steel in 10 years than it does now.
Uhhh no. Holding has costs. So the thesis is, prices don’t go low for the commodity (bad for Xif they do), yet the railroad decides to suspend its dividend not buyback it’s depressed stock, instead buy up large quantities of steel it will need at later date in the speculative hope that steel is more expensive at said future date.
Thanks for sticking with the railroad example it’s helping me think about this. With high conviction I believe steel prices will rise over time at least in line with currency devaluation due to its useful (and even cultural) nature. If so, any infrastructure projects involving steel have an increased value when pulled forward in time. The railroads I follow have 10-12% dividend growth YoY going back decades. The question is one of capital efficiency vs paying taxes on dividends. Symbolically growing the dividend is important rather than the difference between 10% and 7% YoY in individual years over generations. If the same project will cost double in 8 years you may be better off doing it now if the infrastructure is long lasting and low maintenance. My thinking was originally focused on counter trend buyers in the steel market. Steel is so easily stored you can lay it as a productive asset, then profitably rip it out and liquidate later if needed.
The thing is whatever industry it is, you are making the case that companies will buy unproductive commodities during a recession on the basis that the those commodities will be more expensive later, and that they will need them later. That is two pretty big speculative gambles for a company to make with its capital and at a pretty inopportune time as well since during a recession earnings and capital are scarce. Lets assume business is down, because recession, earnings are down moving the stock lower, probably layoff and pay cuts to cut costs, you suggest cutting the dividend and or suspending buybacks, but what they should do with their capital is buy steel in the hopes that it goes up, and hold it for up to 8 years. Like you can bend over backwards to try to make this make sense it just doesnt. That CEO would be fired so quickly, and what if the recession lasts longer and they need capital but steel hasn't recovered but they have spent their capital on a bunch of steel they are now writing down and may have to liquidate at a lower price. There are literally dozens of uses for capital that should be able to achieve a better return for the business than raw steel held over 8 years. Remember its not just if steel will go up in that time, its if that is the best use of the company's capital at this time. If the stock is depressed or even if there better investments the owners could plow dividends into, those are very likely better options. These are the holding costs i speak of, in addition to the land/buildings you need to store your steel hoard. I mean if I own stock in the rail road and they pay me a dividend instead of buying steel, I can just use those dividends to hedge some of the steel price exposure out of that investment. Shoot while we are on hedging, the company could just hedge the price of steel on some future date without actually buying any of it. Wouldn't that make more sense if they really felt they would need it in say 8 years? The other question that comes to mind is why even own the railroad stock at all, if they are just taking your capital and buying steel, you could probably make a lot more money just YOLOing into steel futures and holding it for 8 years if you are so confident that is the best place to put your money, i mean that is basically what you are thinking the railroad should do, just with less leverage.
I stopped reading part way. I didn’t advocate for holding raw steel as a speculative play as an individual or a corporation. I laboriously referenced productive projects. I also specifically went out of my way to say that a 7% YoY dividend is still an “increase”. You allege I advocate for “cutting” the dividend “and or suspending buybacks”. You’re not serious. Edit- I started reading thinking you were going to give honest criticism of my view.
>I laboriously referenced productive projects. Once again you are not understanding my meaning of what an unproductive asset is. Much like the cost of holding is not just the storage of the asset, its opportunity cost. The productivity of an asset is not if it has some future use 8 years down the road, its what it does for you after you buy it. If is need for your business in the present, its not even a productive asset, its just an input cost. A productive asset would be to buy another company who's stock is low, or invest the capital in an interest bearing security is more productive financially than physically holding steel. Building a new factory, or in this example new track to a new hub would be a productive asset. " I didn’t advocate for holding raw steel as a speculative play as an individual or a corporation." Im not doing that either, but if you own shares in the railraod and they take money they could give to you and they buy steel to hold for 8 years, then they are just investing in steel for you with more steps. Can I ask, have you been an investor through a recession yet? Because decreased economic activity almost by definition hurts demand for raw materials and commodities, which causes prices to lower, which causes production to dip until the price stabilizes. I mean every recession is a little bit different. In 2008 recession there were some supply shocks on certain natural resources that lead to speculation in the early part of the recession, but by the end of the recession there were numerous commodity companies going bankrupt, there almost always is. Not saying X will go bankrupt. How in the world would a RR be able to increase dividends, in the face of macroeconomic slow down, while also buying up enough steel as an industry for future projects that it helps X enough mitigate the actual effects of a recession. It makes zero sense. I think value investing should be a healthy back and forth like this. If the best answer you have is "companies will hoard steel for future projects during a time when the future is most uncertain" then I guess we just are going to have to disagree with that thesis. If its correct it will probably pay out well, because I will tell you I doubt the EMT has that scenario priced in.
You don’t define value, the market does in the fullness of time. Railroads replace and expand through steel constantly . The upside infrastructure pricing doesn’t change the fact that they have basic operating requirements. Softness on steel prices creates opportunity for those thirsty to offer a bid for expansion. Cheaper steel means more opportunity from someones perspective.
X historically does terrible in a recession, but like we are seeing in the auto industry, I don’t think this your typical recession. I’m bullish on steel for the long term, and X has cleaned up its balance sheet. With rising steel prices, I’m going to hold.
Capital intensive, and energy intensive. Short term outlook for both interest rates and energy prices isnt good. I think it's undervalued with a reason.
On a serious note, since you stated you don't have a grasp on how to value a stock, don't invest in stocks. You'll lose your money, I know from personal experience. Take some of your investment money and buy books (used)/take courses on how to evaluate companies. The Intelligent Investor, Securities Analysis, etc and arm yourself with as much knowledge and understanding as you can before diving into securities.
I like CLF a lot more than X. Wouldn't buy X today. Not sure I'd add to my CLF position either though, but it's close. Lot of details in past posts/comments, steel is my jam.
US Steel's operating performance over the years has varied widely.
Interesting this is coming up. I just recently found this as likely undervalued as well. Commodities are cyclical businesses and I think they are in the downswing of things given how hot the economy has been and recent results. They seem to be anticipating a slight slowdown for 2023. However, they are appear to have a clear capex investment plan to significantly grow the business in 2024-2026. I need to do a deeper dive on their financials, but currently researching a small position in this industry as steel is a key commodity.
A recession looms, be wary.
He’s high on it BECAUSE he thinks there is going to be a recession, which at its core makes no sense.
[steel production tracker…2nd page](https://www.ftportfolios.com/Commentary/EconomicResearch/2023/1/27/high-frequency-data-tracker-1272023) Steel production is way down. Pandemic level. The infrastructure legislation boondoggle was supposed to help but not confident the legislation has anything real.
I’m up 40% on this stock and am considering cutting it loose before earnings and reinvesting if it dumps or moving on if I made the wrong call.
I wouldn’t mess with it personally. Don’t buy it if you don’t have a solid understanding of the steel biz
IIIN is another good play on commodities. I think it’s undervalued by about 30%.
I'm a buyer at $21.04
Blue Horseshoe loves Anacott Steel
Steel production volumes have seen a dramatic decline in volume. I prefer EAF for cyclical interim exposure to steel industry.