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Sydnee Gatewood
Sydnee Gatewood
Articles (644) 

With New Tariffs on Steel and Aluminum, Andreas Halvorsen Takes a Gamble With United States Steel

Guru established position before tariffs were proposed

March 12, 2018 | About:

After President Trump imposed tariffs on imported steel and aluminum last Thursday, guru investor Andreas Halvorsen (Trades, Portfolio)’s Viking Global Investors disclosed a 5.5% stake in United States Steel Corp. (NYSE:X) on Friday.

According to GuruFocus real-time picks, Halvorsen, a former protégé of Tiger Management founder Julian Robertson (Trades, Portfolio), picked up 9.6 million shares of the Pittsburgh-based steel producer for an average price of $44 per share, giving it 2.55% portfolio space. Filings with the Securities and Exchange Commission, however, indicate the transaction occurred on Feb. 27, before the tariffs were officially introduced on March 1.

In January, the steel producer posted fourth-quarter adjusted earnings of 76 cents per share on $3.13 billion in revenue, topping expectations. For full-year 2017, it posted adjusted earnings of $1.94 per share on $12.3 billion in revenue.

Tariffs

The tariffs, which help fulfill one of Trump’s key campaign promises, consist of a 10% tax on aluminum and a 25% tax on steel. While Canada and Mexico are already excluded from the measure, other countries have a chance of becoming exempt as well.

Unsurprisingly, the tariffs, which will go into effect later this month, have been hotly contested by lawmakers on both sides of the political aisle as well as other countries, sparking fears of a trade war. Gary Cohn, an advocate of free trade and one of Trump’s top economic advisors, even left his post at the White House because of it.

The market reacted negatively to the initial announcement as well. According to CNN, the Dow Jones Industrial Average, S&P 500 and Nasdaq all fell more than 1% on March 1. U.S. Steel, however, climbed 6%.

While the new tariffs will increase manufacturing costs for metal producers, as well as increase the prices of a wide array of products made from these materials, steel and aluminum manufacturers are applauding the move as it will decrease competition.

In a statement reported by CNBC, The Aluminum Association lauded the tariffs:

“We appreciate the President’s commitment to strengthening the U.S. aluminum industry. We look forward to working with the President on implementation and to creating a more level playing field.”

In contrast, Dennis Slater, president of the Association of Equipment Manufacturers, said they were “counterproductive.”

Market movement

According to Bloomberg, after the proclamation was signed by the president on Thursday, U.S. aluminum and steel stocks, which had been seesawing since the tariffs were first proposed, fell. United States Steel closed at $43.69, down 1.49%, on Friday. Nucor Corp. (NYSE:NUE), the largest steel manufacturer in the U.S., was also down. Aluminum producers Alcoa Corp. (NYSE:AA) and Century Aluminum Co. (NASDAQ:CENX), however, ended the week slightly higher.

GuruFocus estimates U.S. Steel gained 13% in 2017. As of Friday, it had climbed 17% year to date.

With his purchase, Halvorsen became the company’s largest guru shareholder. Additional top guru shareholders include Richard Snow (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Ray Dalio (Trades, Portfolio), among others.

Industrial stocks make up 10.8% of Halvorsen’s overall portfolio, which consists of 59 holdings.

Disclosure: No positions.

About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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