Why U.S. Steel Stock Soared This Week

United States Steel (NYSE: X) announced an agreement to be acquired late last year. But the stock performance this year doesn't look like what one normally would expect from a buyout candidate with a hefty premium.

Nippon Steel's $14.9 billion offer represented a nearly 40% premium to U.S. Steel's share price at the time. But the $55-per-share offer faced opposition from several parties, and U.S. Steel shares have been about flat since the Japanese steelmaker's offer last December.

But shares spiked this week as support for the deal grew. U.S. Steel stock has jumped about 12% as of early Friday morning, according to data provided by S&P Global Market Intelligence.

The steel merger makes sense

Timing may have been the biggest obstacle for this potential deal. That's because of U.S. Steel's name and its iconic American history combined with election-year politics. But U.S. Steel CEO David Burritt and Nippon management have been defending the planned merger. Nippon has said it will invest $1 billion to help modernize the company's facilities in Pennsylvania. U.S. Steel isn't in a financial position to invest that kind of capital.

In a bid to gain union support for the deal, Nippon executive vice president Takahiro Mori sent a letter to United Steelworkers union members this week pledging not to import steel from its overseas mills into the U.S. That could also help ease tensions with politicians from both parties who have spoken out against the deal.

Reports this week also said that Pennsylvania governor Josh Shapiro met with Nippon executive Mori to discuss the deal's impact on U.S. Steel's Pittsburgh-area plants and its unions. Momentum seems to be building more in favor of the deal while it continues under review by the Committee on Foreign Investment in the U.S.

Nippon's ownership won't change anything related to domestic steel production. Equipment won't be moved; the plan is to modernize it. Several successful auto plants in the U.S. are owned by Japanese automakers, and this deal makes sense for all involved.

Should you invest $1,000 in United States Steel right now?

Before you buy stock in United States Steel, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and United States Steel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $898,809!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 18, 2024

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.