United States Steel: Buy, Sell, or Hold?

United States Steel (NYSE: X), which normally just goes by U.S. Steel, is an iconic name in the steel industry. However, the name recognition stems from the company's past success, not its current fortunes. In fact, the company recently agreed to sell itself. That's the key to deciding whether it's worth buying, selling, or holding. Here's what you need to know.

Buy United States Steel

United States Steel is probably best described as a special situations stock. It agreed to be bought by Japan's Nippon Steel in 2023 for $55 per share. The stock is currently trading at around $38 per share, so there could material upside if it gets bought for anything close to Nippon Steel's offer. That's the reason to buy U.S. Steel today.

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The interesting thing is that there appear to be other suitors waiting in the wings. So even if Nippon Steel's acquisition fails, a new buyout offer could be on the table. Some of the domestic steel industry's largest companies are rumored to be interested, including Nucor and Cleveland-Cliffs. That offer could be for a higher price than $55 per share, or, given the troubles facing the Nippon Steel deal, it could be for a lower price. Still, it seems reasonable to expect the price to be higher than the current price.

In all, U.S. Steel is "in play," and investors have solid reasons to believe that it's going to be sold. If that type of investment interests you, it might be worth digging into the stock and the complex merger situation surrounding it.

Sell U.S. Steel

There's one major problem here. The Nippon Steel acquisition has turned into a political fight and there's no way to know whether the outcome will be positive or negative for U.S. Steel and its shareholders. It seems reasonable that the company will be sold, even if it requires breaking the company up into different parts. But steel is a vital domestic industry in a number of important ways, from employment to the use of steel in military equipment. There's a good chance that a sale doesn't, in fact, come to pass. If that's the case, investors have to make sure they understand what they're buying.

At its core, U.S. Steel is a primary steel company. That means it uses blast furnaces to produce steel from iron ore and metallurgical coal. This is a very expensive process and can lead to wide swings in revenue and earnings, given that steel is a commodity and the industry is cyclical. The swings in the industry, and U.S. Steel's financial results, can lead to material swings in the stock price, too.

That said, U.S. Steel has been attempting to diversify its business by building a large electric arc mini-mill. This should help to even out its financial performance, given that this more modern technology tends to be more flexible than blast furnace technology. Still, you can buy a company like Nucor, which only uses electric arc mini-mills, if that's the exposure you really want. In some ways, U.S. Steel is looking to be a Jack of all trades, but it might just end up being a master of none.

The backdrop here just isn't all that compelling once you step beyond the merger story.

Hold United States Steel

Most investors will probably want to avoid U.S. Steel given the complex and uncertain back story. That said, if you bought it on the initial merger excitement and are now sitting on paper losses, you have a tough decision to make.

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Given the company's core business, you can find better steel stocks to own if you want steel exposure. Yet there could still be a sale even if Nippon Steel's deal falls apart. If you believe that additional suitors are going to swoop in, it could be worth sticking it out with this high-profile stock today. But, again, this is a special situation stock and it is not going to be a good fit for most investors.

United States Steel is a tough stock to love

From an investor's point of view, a standalone U.S. Steel isn't very compelling. It's no longer an industry leader, and while it's working to upgrade its business model, the use of older blast furnace technology suggests it will remain a volatile stock. The big reason to be interested is the merger, but even there the story has gotten very complicated. Only the most aggressive investors should probably be looking at U.S. Steel today, given the risk that the Nippon Steel deal falls apart and the further uncertainty that outcome would create.

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Reuben Gregg Brewer has positions in Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.