Why U.S. Steel Might Be Poised to Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of U.S. Steel (NYSE: X  ) slipped 1.5% this morning after Deutsche Bank downgraded the steel company from buy, to hold.

So what: Along with the downgrade, analyst David Martin planted a price target of $26 on the stock, representing about 2% worth of upside to yesterday's close. While momentum traders might be attracted to U.S. Steel's 9% earnings-related pop yesterday, Martin believes that all of its efficiency improvements are now baked well into the valuation.

Now what: Deutsche thinks that ArcelorMittal (NYSE: MT  ) and Steel Dynamics (NASDAQ: STLD  ) offer better risk/reward trade-offs in the steel space. Needham noted:

Corporate initiatives announced are + and its shares have now risen ~45% in 6 mths partially in anticipation of the moves. Other + factors are HRC prices, pension benefits & trade cases. We believe these & further cost initiatives are understood or priced-in.

With U.S. Steel still trading at a clear price-to-sales discount to the industry, however, I wouldn't bet on too big of a pullback.

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