What happened
Shares of United States Steel (X -2.32%) jumped a whopping 46.9% in the month of November, according to data provided by S&P Global Market Intelligence. The steel stock isn't done rallying just yet: It's already up another 7.8% so far this month, as of the time of this writing.
While a recent consolidating move by a big player in the steel industry buoyed steel stocks, an analyst upgrade sent U.S. Steel shares shooting through the roof toward the end of the month.
So what
On November 24, GLJ Research upgraded its rating on U.S. Steel to buy with a 12-month price target of $17.30, an upside of nearly 50% from the stock's trading price at the time. GLJ also upgraded Cleveland-Cliffs (CLF -11.03%) stock to buy.
According to a note on StreetInsider.com, analyst Gordon Johnson of GLJ foresees "big upside" in U.S. Steel shares in the near term, driven by an acute supply shortage in the U.S., limited availability of American steel, and rising global steel prices.
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The hot-rolled coil (HRC) spot price in the U.S. is currently hovering around its highest since March 2019. Highlighting this recent surge in HRC price, Johnson said, "In short, with a number of near-term catalysts on the horizon, we think now is the time to reengage steel stocks on the long side, particularly the blast furnace mills exposed to the high-end auto steel markets (i.e., X & CLF)."
This analyst upgrade comes close on the heels of a megamerger in the making -- in late September, Cleveland-Cliffs announced it is acquiring ArcelorMittal's (MT -2.40%) U.S. steel operations for roughly $1.4 billion. The deal is expected to close this month. With Cleveland-Cliffs having lapped up AK Steel earlier in the year, the market expects further consolidation to boost growth prospects for major steelmakers in the U.S., including U.S. Steel.
Now what
GLJ's argument in favor of steel stocks isn't unfounded. Steel prices are on the rise even as production remains muted: U.S. steel production declined 15.3% year over year in October. With expectations that President-elect Joe Biden will kick off his infrastructure spending plan and spur demand for steel also rising high, the enthusiasm in metal stocks like U.S. Steel will likely endure.
