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United States Steel stocks may be in worse shape after President Donald Trump’s tariffs take effect, even though these are meant to help the steel industry — but it will be a “great short,” according to a Wall Street analyst.
Vertical Research Group analyst Gordon Johnson told CNBC’s “Closing Bell” on Tuesday that “there was too much good news priced in” U.S. Steel’s former valuation.
Johnson called U.S. Steel “significantly, fundamentally, worse off” with the tariffs, set to begin later this month. He doesn’t think the tariffs will do the company or investors much good in the long run.
He added: “It’s going to hurt the global economy and steel prices.”
Johnson also pointed out that operating costs for the company, including costs associated with its soon-to-be-reopened Granite City Works integrated plant in Illinois — what he called “one of the least efficient steel mills in the world” — are up. This means they will not benefit from the higher steel prices, he said.
Last week, Trump signed off on tariffs on imported steel and aluminum, exempting Canada and Mexico.
On Tuesday, the group downgraded U.S. Steel stocks from hold to sell. Stock prices quickly fell about 8 percent, from about $44 to around $40.
“The steel mills are not going to be able to go to the government and argue for protectionism. They’re going to have to compete in a global market now. That’s going to be bad for prices,” Johnson added.
But the analyst, who specializes in alternative energy, metals and mining and equipment rental research, told CNBC this might be good news for investors.
“It’s a great short,” said the Wall Street analyst, referring to the process of selling borrowed shares in the hopes of buying back the same stock at a lower price and turning a profit.
He pointed out that former President George W. Bush placed tariffs on imported steel back in 2002 for just eight months. But he gave more than 700 exemptions on steel products and countries because the U.S. didn’t — and still doesn’t — produce enough steel to meet its needs.
“If you actually shorted U.S. Steel stocks on that decision, you would have made a lot of money,” Johnson said. “The steel stocks got hit pretty hard.”
“If President Trump actually has to implement these exclusions from products and countries, you’re going to see their earnings go down through the year,” he added.
Former President Barack Obama also granted steel mills tariffs while in office, but implemented them slowly.
Meanwhile, the guidance for U.S. Steel’s 2018 Ebitda is $1.7 billion. But Johnson said those numbers should be higher — $2.5 billion to $3 billion — with accelerated steel production and its plant reopening later this year.
U.S. Steel did not respond to a request for comment.
President Trump is souring on his embattled Veterans Affairs secretary, David Shulkin, and telling aides he might replace him as part of a broader shake-up of his Cabinet, according to three advisers to the president.
As Trump seeks to widen a changing of the guard that started Tuesday with his firing of Secretary of State Rex Tillerson, Shulkin could be next, the advisers said.
Senior White House officials said Shulkin could be forced out within days.
The president is considering Energy Secretary Rick Perry, an Air Force veteran, to replace Shulkin, as the New York Times first reported. Trump invited Perry to the White House for lunch on Monday but did not formally offer him the job.
A physician and former hospital executive who won unanimous confirmation by the Senate last year, Shulkin, 58, has been a favorite of Trump’s, racking up legislative victories and fast changes at an agency the president railed against on the campaign trail.
But months of turmoil in VA’s senior ranks have roiled the second-largest federal bureaucracy, which employs 360,000 people. Shulkin has said publicly that high-level political appointees installed by the White House are scheming to oust him over personality and policy differences.
Shulkin, the only Obama administration holdover in the Trump Cabinet, has taken a moderate approach to expanding the Choice Program, which gives veterans the option to see private doctors outside the system. He has advocated leaving the decision to VA doctors, in part because private care, with expensive co-pays, would cost taxpayers much more than the current system.
But conservatives at the agency and in the White House, backed by the billionaire Koch brothers, have pushed for more private care — and say Shulkin has hindered that goal.
Shulkin’s security detail is also under investigation by VA Inspector General Michael Missal, who is expected to release a report within weeks on alleged abuses by some of its members.
He also has clashed with White House appointees at the agency on changing VA’s motto to embrace female veterans and on several high-level personnel decisions.
The tensions became public in February with the release of a critical report by the inspector general on a 10-day trip Shulkin took with his top staff to Europe last summer. The trip included six-and-a-half days of sightseeing, and the secretary improperly accepted a gift of tickets to a Wimbledon tennis match, the watchdog found. His chief of staff resigned after the report said she doctored an email to justify allowing Shulkin’s wife to travel to Europe at taxpayers’ expense. Shulkin repaid the government for the tennis tickets and for his wife’s airfare.
In the weeks since the report’s release, his detractors have lobbied the White House to force Shulkin out. After the secretary met with White House Chief of Staff John F. Kelly several times, it appeared that he was safe. Shulkin said Kelly had given him the go-ahead to dispatch those on his staff he viewed as obstructionists. A majority of key lawmakers on Capitol Hill have rallied to his side. As recently as last week, the president was supporting Shulkin, who has openly discussed his conversations with Kelly with reporters.
But as of Tuesday, none of the appointees had been fired. Senior White House aides have mounted an internal campaign to convince Trump that the administration’s priorities — chief among them his promise to veterans that appointments with private doctors should be more readily accessible — are at odds with Shulkin’s.
Trump met with Shulkin in the Oval Office last week and asked him about his efforts to expand the Choice Program.
The president then telephoned Pete Hegseth, weekend co-host of “Fox Friends” and a former chief executive of Concerned Veterans for America, a conservative advocacy group backed by the Kochs. The president wanted his views on how to move forward.
Hegseth said he favored moving as aggressively as possible to a private-care model, according to someone with knowledge of his answer. Shulkin said he favored a more moderate approach.
