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 (X 1.56%) 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 (MT 0.08%) and Steel Dynamics (STLD 2.39%) 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.
