If you are looking for a stock to short in this uncertain market, you do not want to short a stock with good fundamentals. This is because if the market rallies, that stock would rally really hard.
You would want to short a relatively weak fundamental stock. And this stock I have chosen is United States Steel (NYSE: X).
Let us take a look at United States Steel X fundamentals.
Earnings Estimate for Q1 2010: – $1.54 Full year: –0.17
Actual Earnings Q4:-$1.86 Q3:-$2.11 Q2:-$3.28 Q1:-$3.84
“Commenting on U. S. Steel’s outlook, Surma said, “We expect to report an overall first quarter 2010 operating loss in line with the fourth quarter 2009 as gradually improving business conditions are not yet fully reflected in our operating results.”
And 4th quarter is usually the strongest quarter, so Q1 earnings might actually be worst. X always release earnings lower than estimates.
In 2005, United Steel made $6 per share and the stock declined from $70 to $33. We might be seeing the same trend coming again. See the chart below.
This is a short term short play. Why X is doing so well now is only because the sector is quite strong. No doubt. But Goldman report shows that profitability for X is a distant dream.
Commodities are going to be hammered as China tightens their policies.
If you are bullish on Steels, BUY AKS. it is a much better pick. You could pair trade AKS and X. Short X and Long 2 units of AKS.
Cover X at $35-$40.
This is a Short recommendation. Understand that there is extremely high risk involved in shorting stocks. We are going to be in a bull market soon, so careful with shorting.
Start covering as soon as it profits.
Short United States Steel X at $48, Cover at $35
Day trade trend: BEARISH.
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