Tuesday, March 30, 2010
Cases Study in Hype: U. S. Steel and Laszlo Birinyi
Before getting to the specific case study, I recall that Bill Fleckenstein warned months ago that a sign of the impending market top he was expecting was when "strategists" started pointing to the "resilience" of the market. Well, it's here, and from a well-known figure. Laszlo Birinyi was quite bullish at the end of 2007. He is quite bullish again and uses the "R" word:
“Given our trading background and approaches, we are impressed with the resilience of the market which, in effect, is what trading desks mean when they say the market ‘acts well,’” according to the report Birinyi sent to clients today. “Large stocks are now likely to be contributors rather than detractors.”
This "R" word is accompanied by the dubious statement that large stocks are not contributors to this move.
Are you impressed that the "market" is acting well? Do you believe that acting is reality? Does a body in motion stay in motion? Why is it that people with vested interests in rising prices talk their book? Well, duh, think for yourself. Do you buy more or less of something when its price rises?
One of the larger contributors is United States Steel ("X"). Its 2-year chart shows it to have been a laggard on that time frame but it has soared over 1 year. David Pauly of Bloomberg is bullish, citing the price rise:
Favorable news continues. Shares of U.S. Steel Corp., a backbone-industry company, have climbed almost 50 percent since Feb. 4. Apple Inc., maker of iPods and iPads, may hit $300 from its current price of about $232, Credit Suisse Group AG said Friday.
I searched Yahoo's finance section re news on U. S. Steel.
Basically there are a bunch of references to rising prices. What is lacking is that 2010 and 2011 earnings estimates are down from 60 days ago, while the stock is up. The first substantive news I found was from a couple of weeks ago, which was that a larger competitor, ArcelorMittal, had downbeat earnings news.
U. S. Steel sells at 3 1/2 times tangible book value in an industry that frequently sells under book. It has a dividend yield of 0.3% in a highly cyclical mature industry that in younger mature times such as the 1950s had high dividend yields.
I wish X well. One thing is certain. Past stock performance is no guide to future performance. All shareholders get from the big moves up and down is, at the end of the day, either the dividend, any spin-offs, or whatever another company wishes to pay you for your stock. The idea that you should be an owner of this company because you expect to outsmart a future buyer is, for most people, a difficult one for me to accept.
Has X been a resilient stock and a resilient company that makes non-resilient products?
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